Bob Ainsworth: We are aware of problems with the proposed legislation in South Africa and my right hon. Friend the Secretary of State has spoken to the South African Minister of Defence on the telephone and written to him about it. The result of those conversations provide some degree of reassurance about what the South African Government intended to do. However, we are not there yet and nothing is pinned down. We are still concerned, as are the people directly concerned. We are trying to keep them informed of the situation and if there are any developments we most certainly will inform them.

Gerald Howarth: May I associate myself with the tributes to Guardsman Daryl Hickey of the Grenadier Guards, who are based at Aldershot but are serving with enormous distinction in Afghanistan, where I had the privilege of meeting some of them?
	The Minister said that he faces a significant challenge. Is he aware that the outflow of experienced Royal Air Force officers and other ranks is particularly marked, having increased by an alarming 50 per cent. over the past three years? As the Defence Committee reported recently, the tempo of intensive war-fighting operations in the middle east is taking a relentless toll on servicemen and their families, with the Nimrod, Harrier and transport crews facing particular difficulties. I suggest that the Secretary of State tells the Prime Minister that Her Majesty's armed forces are appalled at the downgrading of his post by its being combined with the Scottish Office, and that it should be full-time so that he can address the serious crisis in retention of experience personnel across all three armed services.

Des Browne: I recognise that helicopters are vital to our success in operations in Afghanistan and Iraq. I pay tribute to the hon. Lady for her consistent questioning of me and other Ministers on support for our troops and in other respects. She knows that we have made additional hours available and that further work continues on spares and crewing to increase the hours per months that helicopters can fly. She knows that we have developed a way of turning individual helicopters into treatment centres, rather than having dedicated casevac helicopters; that is the right thing to do. She also knows that I announced the intention to buy six additional Merlin helicopters, which will be available within a year, and to convert the eight existing Mark 3 Chinook helicopters to make them available for deployment. We have invested £230 million in that regard, but if that does not provide sufficient helicopter support for our troops in their continuing commitment to operations abroad, I am of course prepared to identify and deploy other resources to that effect.

Des Browne: First, may I welcome the hon. Gentleman to his new responsibilities on the Front Bench? All members of my team look forward to working with him.
	The Wiltshire coroner does not have a backlog of military inquests. He has one pre-April 2007 inquest hearing outstanding, which is on the deaths of 10 crew members killed in a Hercules crash in January 2005. He held a pre-inquest hearing on that case in February. The timing of that inquest is entirely within his control. Given the complexity and the nature of the inquest, I fully understand why it has taken such a time to get to the full inquest hearing, and I make no comment about that.
	The most significant thing that we have done, apart from providing additional resources to address the backlog that had built up in Oxfordshire, is to remove the reliance on a single coroner. That means that in cases that would normally have been the responsibility of the Wiltshire coroner because of where the body rested, there is now no reason for him to be responsible for carrying out the inquest. Specifically, of those cases that are presently on his list, 24 can be expected to be dealt with by home coroners—that is, coroners nearer the homes of the families involved. In my view, that is the best development that we could ensure, in terms of properly respecting the families. It leaves only 10 of the cases on the list that has been used by the media as his responsibility.
	The hon. Gentleman can rest assured and can reassure the Wiltshire coroner that the issue, which I took up immediately on taking office, sits on my desk every day. I have been working on it with colleagues from the Department for Constitutional Affairs, and now am doing so with colleagues from the Ministry of Justice. I will do everything that I can, and if the issue needs additional resources, I will identify them, but I do not accept that there is a backlog.

Des Browne: The hon. Gentleman will be pleased to know that in the last week alone I have spoken to those involved in providing such forces in Berlin in the person of the German Minister of Defence, and in Paris in the person of the newly appointed Defence Minister, and, as I have already told the House, I had a long conversation with Javier Solana seeking further EU support on the civil side for what we are doing. So the hon. Gentleman can rest assured that despite my responsibilities in relation to Scotland I have not fallen down on this issue or the challenge that I identified some time ago in getting other countries to increase their support to us, particularly in the south of Afghanistan. I anticipate that we will see improvements in relation to that. For example, he will have noticed that the Danish Parliament has effectively agreed to send a battle group to Helmand, which will operate partly under our command in the central part of Helmand province and will make a significant contribution to our ability to continue the work of the Mechanised Brigade there, whose success and commitment I thank the hon. Gentleman for recognising.

David Miliband: First of all, let me say that sometimes, across this Dispatch Box, spokesmen for different parties make commitments to work together in the national interest that are taken with a pinch of salt. However, on a previous occasion, the right hon. Gentleman said that he wanted to work with the Government on interests of national interest where there could be a bipartisan approach, and today he has demonstrated that he is a man of his word in that area. His support for the Government's approach is very significant because it sends the signal that the measures we are announcing today have support across the political spectrum in the United Kingdom. I look forward to the response of the hon. Member for Berwickshire, Roxburgh and Selkirk (Mr. Moore), who speaks for the Liberal Democrats. I hope that we can say at the end of our discussion about the statement that the measures have the support of the United Kingdom, not just the United Kingdom Government.
	Let me go through the points raised by the right hon. Member for Richmond, Yorks (Mr. Hague). We perceived it as a positive step that the Russian Government wanted to sign the memorandum of understanding. However, that memorandum is an exchange of information about the extradition practices in different countries, not a legally binding instrument. I am disappointed that it does not transpire that the Russian desire to be party to it is reflected in the case that we are considering.
	Secondly, the right hon. Gentleman asked about active assurances that had been sought from the Russian Government, especially in respect of the response from the deputy prosecutor general. He did not ask for more evidence, and I assure the right hon. Gentleman that substantial and sufficient information has been sent to the Russian authorities to make it clear that there is a case to answer. That is the responsibility of the Crown Prosecution Service.
	The right hon. Gentleman mentioned trial in a third country, which will doubtless be raised in the next few hours. The bar that the Russians use to justify failure to extradite to this country applies equally to another country. Either there is or there is not a constitutional bar.
	The right hon. Gentleman asked about the seniority of the diplomats who are being expelled. We have chosen to expel four particular diplomats in order to send a clear and proportionate signal to the Russian Government about the seriousness of the case. He also asked about visa practice and it may help if I explain the difference between the visa practice and the visa facilitation that I mentioned in the statement. Visa practice refers to officials from the Russian Government and visa facilitation refers to an attempt or desire on our part to speed up visa processes outside diplomatic circles. The latter cannot go ahead in the way in which we had hoped.
	I am grateful for the right hon. Gentleman's support for the work of our international partners. I have obviously discussed the matter with G7 and EU partners, and we will take it further at the General Affairs Council next week.
	The right hon. Gentleman rightly concluded that Russia and the United Kingdom have strong shared interests and that it is strongly in Russia's interest to have a positive and co-operative relationship with the UK. That is our desire. Russia has every right to be a full and respected partner of the international community, but with that right goes responsibilities. Today is about asserting that those responsibilities as well as those rights should be exercised properly.

David Miliband: It is important that, in the discussion on the statement, I stick closely to the case in hand, which is that of Mr. Lugovoy and the integrity of our judicial process. However, my hon. Friend makes a good point about an issue that we could debate at greater length on another occasion: the way in which we, as part of the international community, help achieve a proper relationship between Russia and other countries, which has to be based on mutual respect. We are clear that Russia should have a respected place in the international community but that it must exercise the responsibilities that go with membership of that community. I look forward to discussing that with my hon. Friend and the Foreign Affairs Committee in due course.

David Miliband: I am grateful for the hon. Gentleman's support. It is significant that we should have cross-party consensus on the issue. I am also grateful to him for picking me up on not addressing properly the question that the Chairman of the Foreign Affairs Committee asked about the harassment of diplomats and representatives of the British Council. Any such acts are extremely serious and completely contrary to the way in which civilised behaviour should be taken forward. That is obviously the case for diplomats, but it is also the case for the hard-working staff of the British Council, whether they be British citizens or locally hired citizens.
	It may help the House if I report that the overwhelming majority of press and media comment in Russia about the work of the British Council is extremely positive. The scurrilous rumours that are put round about the council are completely without foundation. The operational work of the British Council—its priorities and its way of working—is set independently. It would be reprehensible for there to be any suggestion that its important work should be subject to any harassment or other interference.
	Finally, in respect of the European Union, I shall be discussing the issue next week. We look forward to taking the issues under discussion forward with our European partners, including that of the wider bilateral relationship. My hon. Friend the Member for Ilford, South (Mike Gapes) is right that a range of countries want the issue on the agenda of European meetings, and we shall certainly contribute fully to that.

David Miliband: I am grateful to my hon. Friend for his strong support. The heinous crime of murder requires justice, and I believe that the response that we have set out today is the right one. It is a proportionate response; who it is aimed at is clear as are the point it is trying to make and the aims that it is trying to secure. I am grateful for his support.

Andrew MacKinlay: May I make it clear that I, too, deprecate the murder and recognise the gravity of the situation caused to Londoners by that murder? The issue before the House today, however, is whether the response is proportionate and will have the desired effect. That is where my mood differs from that of the House; I am not sure that the response will be effective. Presumably, the Secretary of State will make a statement when he reinstates the four diplomats whom he is expelling—because that will happen; it happens by creep. Everyone knows that.
	Secondly, I am deeply concerned about the House's mood, which seems to be anti-Russian, regardless of the fact that we sometimes treat the Russians very arrogantly, and that they have people who they perceive should be facing their courts in London protected by our system. I believe that we should pause and reflect on whether our relations are spiralling down very badly. A few moments ago, my hon. Friend the Member for Rhondda (Chris Bryant) referred to Russia's stalling on the conventional armed forces in Europe treaty and there is also the attitude to Kosovo. I think that we are on a dangerous course— [Interruption.]

Andrew MacKinlay: It is different, though, to the rest!

David Miliband: Obviously I believe that today's statement will help to advance the three aims that I set out in it, otherwise I would not have made it. I am sorry that the hon. Gentleman could not follow that clearly.
	I think it important not just to send a signal, which we have done, but to take practical, concrete measures, which we have also done. Those measures are designed to make a particular point to particular people, and I believe that they will do so. They will also lead to further international engagement, which we will undertake in a serious way. However, as a number of Members have pointed out today, there is a wider relationship which needs to be founded on a clear basis of mutual respect. That applies in each case, and also in relation to the broader picture. Today's announcement was designed to advance that relationship, and I believe it is our best hope of doing so.

David Miliband: Tempting as it is to wander into the terrain offered by the hon. Gentleman, the temptation is not great enough for me to do so. I am sorry that he has not been able to view this case, and the rights and wrongs of it, in and of themselves. He indicated support for the Government's position in this instance, and I am grateful for that. I believe that we had no option but to do what we have done, and I hope we can proceed on that basis.

Vincent Cable: I have already given the answer to that question to the hon. Member for Aldershot (Mr. Howarth). The hon. Member for Ribble Valley (Mr. Evans) ascribes to me a power of argument that is flattering. There are questions that must be asked, and I am sure that he would not want us to be uncritical about the arms exports regime, to which we shall refer.
	We are updating the arguments, partly to allow for the legal issues, partly to allow for the allegations concerning the al-Yamamah project as a whole, partly to bring up to date the Organisation for Economic Co-operation and Development inquiry's approach to the question, and partly to bring into the discussion the highly relevant and worrying developments in relation to the United States, which only this weekend insisted on reopening the case, and on British collaboration with that. It would probably be useful to start with an overall approach. When we introduced the debate six months ago, the key issue was the rule of law: whether it was being applied and what the law on bribery and corruption in overseas business meant. We have argued those points, and they continue to be relevant in many respects.
	The underlying theme that I wish to develop concerns the broad question of parliamentary accountability and how the new thinking that the Prime Minister has introduced, which is welcome, about greater openness in government and, specifically, greater openness about security matters should apply in this area. The key argument, to which we keep returning in the debate about the Saudi project and al-Yamamah, concerns national security interests. That argument was invoked as the reason for stopping the Serious Fraud Office inquiry, for limiting the information given to the OECD and for not proceeding with or publishing the National Audit Office investigation. It is the argument that is used for not answering most of our parliamentary questions on the subject.
	Let me make it clear that just as I and my colleagues respect perfectly open, honest arms exports, we fully understand and respect arguments about national security. On a personal level, as a 30-year-old civil servant I worked in the Foreign Office, and the division that I headed included, among other things, quite an important communist country at the height of the cold war. I was fully indoctrinated in the intelligence process and the Official Secrets Act and honoured its obligations. I have always been perhaps excessively deferential to arguments based on national security. However, some fundamental questions about the workings of the intelligence and security arguments need to continue to be probed, because the Government have used them in unsatisfactory ways.
	I have three points on this issue. The first concerns what could be called revelations, but are in fact points from the Government's evidence that was submitted to a recent High Court hearing brought by The Corner House and the Campaign Against Arms Trade. The Government set out—much more specifically and helpfully than when the Attorney-General and the Solicitor-General made their statements to Parliament—how the director of the Serious Fraud Office came to the conclusion that he should not proceed on national security grounds. That showed, in quite an extraordinary way, his reluctance to come to that conclusion.
	There were three steps. In December 2005, there was a so-called Shawcross exercise by other Departments, which involved, I think, the Prime Minister. The director of the Serious Fraud Office and the Attorney-General rejected the recommendation that the director of the Serious Fraud Office cease to proceed with the inquiry. On 30 September—I do not think that this has been stated to Parliament, but it was stated to the court—a letter from the Cabinet Secretary to the Attorney-General and the head of the Serious Fraud Office explained that our counter-terrorist operations might be affected adversely if he proceeded with his inquiry. At that point, remarkably, not only the head of the Serious Fraud Office but the Attorney-General rejected the advice. On 30 November, the head of the Serious Fraud Office was brought together with the British ambassador to Saudi Arabia and phrases such as "Lives were at risk" were put to him. He did not immediately cease the inquiry; it required three meetings with senior officials and the ambassador before he finally agreed, on 13 December, to do so.
	That is taken from the account that the Government have given of the chronology—I am not manufacturing any of it.  [Interruption.] I have thought carefully about it, and it is all set out here in print. I am surprised that the Minister finds this so difficult; I am not referring to press reports.

Vincent Cable: I am glad. It reflects well on the director of the Serious Fraud Office that he took his duties so seriously. It is clear that either he thought that the public interest in proceeding was compelling, and sufficient that he could initially ignore advice about counter-terrorism, or he found the arguments about counter-terrorism unpersuasive.
	Subsequently, the director of the SFO said in evidence to the Select Committee on Constitutional Affairs, chaired by my right hon. Friend the Member for Berwick-upon-Tweed, that the one item that persuaded him to change his mind was a memorandum from the Prime Minister, to which was attached a more detailed memorandum from Sir Richard Mottram, who is a security adviser to the Government. He may not have been aware at the time, although it has since been pointed out, that that same civil servant, who I am sure is a man of enormous integrity, was, 20 years previously, private secretary to Michael Heseltine, who set up the meetings that led to the al-Yamamah agreement.Whatever Sir Richard's competence and integrity, he was hardly disinterested.
	A problem that has occurred throughout this issue is that of senior people in government—another is the head of the National Audit Office, who was also an MOD official—who, for all their high levels of competence, professionalism and integrity, do not have a disinterested position. Resurrecting my O-level Latin, I have to ask, "Quis custodiet ipsos custodes?" Who will guard the guardians? I think that that is highly relevant to the present context. That is the first question that I wish to pose about the intelligence argument.
	The second problem is that the argument that the counter-intelligence issues should deter an investigation sounded to us inherently implausible even six months ago because the relationship with Saudi Arabia is a two-way one, underpinned by a memorandum of understanding—I do not think that that had been made clear before—and is therefore a formal arrangement from which Saudi Arabia benefits as we do. It was unclear why one party to that agreement should imperil a bilaterally mutually advantageous arrangement.
	The assertion that that argument was a compelling one has become even less plausible for two reasons. First the embarrassment that could have been caused to senior Saudis has become history. Prince Bandar has been named and embarrassed, and all the information about his activities has now been published. If the intention was to protect him from that embarrassment, it is already history. Secondly, and much more serious, is the decision of the United States Department of Justice to intervene and to investigate. One has to ask why on earth the United States, which is leading the war on terror and which has far more reason to be concerned about maintaining its security relationship with Saudi Arabia than we have, should pursue a potentially embarrassing investigation into the relationships between BAE Systems and Saudi princes.

Vincent Cable: I have nothing against that company at all, and I welcome its continued commercial activity—providing, of course, that it abides by the law, as we all must.
	Let me move beyond the arguments about intelligence to specific issues that have arisen in the past six months. The first relates to the legal position, and the differing views of the former Attorney-General and the Serious Fraud Office. As I said, those views were brought out by the Select Committee on Constitutional Affairs, chaired by my right hon. Friend the Member for Berwick-upon-Tweed. When the then Attorney-General made his statement to the House of Lords, it was said that the arguments for ceasing the investigation were not simply about national security. He has said that there were severe technical and legal difficulties in bringing any prosecution. Many distinguished people have pitched in and supported that argument, and I seem to remember that they included the hon. Member for Beaconsfield (Mr. Grieve), the Conservative spokesman, who is a distinguished lawyer in his own right. He put on his legal hat, as he put it, and concluded that
	"On the face of it, there can be no prosecution if there was an agreement to give commission payments to certain agents of the Saudi Government, with the full knowledge of the Saudi Government, as part of the overall contractual arrangements."—[ Official Report, 7 February 2007; Vol. 456, c. 884.]
	I am not a lawyer, but there seems to be an element of common sense to the idea that it is rather difficult to apply the law when one of the most senior members of the Government are involved. The problem is that the argument does not seem to have persuaded the head of the Serious Fraud Office, who persists in holding a contrary view. When my right hon. Friend the Member for Berwick-upon-Tweed conducted his inquiry, he specifically said to the head of the SFO that the Attorney-General
	"stated that in his view, as opposed to yours, the ground for ceasing the investigation was that it could not lead to a successful prosecution."
	The head of the SFO, who had had several months in which to reflect, and who had no doubt received legal advice, replied:
	"He certainly took that view. I took a slightly different view. I took the view that I would prefer to continue the investigation, to obtain the evidence, before making a final decision".
	It is important that we understand whether it is the Attorney-General who is right or the head of the Serious Fraud Office, a very senior official, who, unlike many of the other people involved in the argument, has no political axe to grind, so we must take his views seriously. If the Attorney-General, the Government and the Conservative spokesman are right, there are serious implications. The first is that we have a highly defective law governing bribery in overseas countries, which in many cases simply cannot be applied. That raises the question as to why the head of the SFO is spending taxpayers' money pursuing further investigations, which, among other things, include South Africa, where the alleged recipient of money is none other than the vice- president, and where precisely the same argument about principles and agents could be advanced as is being advanced in the case of Saudi Arabia. If the law is defective, do the Government propose to change it? There was nothing in the sketch of the Queen's Speech that indicated that an improvement was coming, but if the Government really believe that the law is inadequate and cannot be applied, do they have any plans to change it.?

Vincent Cable: That is a helpful clarification. On the first point, of course the hon. and learned Lady is right that the difference of view surfaced earlier. I simply mentioned it because the head of the SFO persisted with his arguments several months after the event, presumably having reflected a great deal upon it. Her final comment is helpful and positive.
	The first major set of developments relates to those arguments, the second relates to the allegations—if that is what they are—by the BBC and  The Guardian about the fuller aspects of the al-Yamamah inquiry. When I first mentioned the dreaded name  The Guardian a few moments ago, several hon. Members jumped to their feet with outrage that we should be giving any credibility to this issue at all. However, although that newspaper is not particularly friendly to the Liberal Democrats, it is a serious newspaper, which gives the full power of editorial support to this particular story. But more important than that is the role of the BBC, which did, after all, lose a director-general and a chairman because it had not done its homework correctly on an important and sensitive issue a few years ago. I find it difficult to believe that it would have lent its credibility to a story of this kind unless it had carefully sourced and checked it.
	No one has suggested that there is a contrary version of events, so let us assume for the moment that in the case of the al-Yamamah contract, what happened is broadly what has been described in that account. It means that, effectively, there are two sets of corruption allegations. Perhaps corruption is too loaded a word in this context, so let us say that there are two sets of problems. The Serious Fraud Office investigated the first problem, which dates back to a specific complaint. It originated in Robert Lee International, an intermediate company, which provided services to the Saudi royal family. There was a whistleblower, Edward Cunningham, who went to the SFO with his evidence, which was the basis on which the inquiry was launched.
	The investigation by the BBC and  The Guardian makes a much bigger and more substantial allegation, and it reaches to the heart of government: it is not simply a matter of a relationship between a company and a named individual. The allegation is that £1 billion was paid over a 10-year period at three-monthly intervals into one of two accounts in Riggs bank in the United States under the name of Prince Bandar. He is a very important figure in the Saudi regime. He was named first not in that investigation: I mentioned his name in an Adjournment debate a few weeks before, because it was clear that, where he was concerned, some extraordinary developments had occurred. It had been pointed out to me that, for example, in the period since July 2006, he visited this country 14 times in a private jet that landed at an RAF air base, and that he had six meetings with Foreign and Commonwealth Office officials and undisclosed meetings with others.
	That is clearly somebody who was at the heart of our official relationship with the Saudi Government. There exists a very close relationship between an individual and the British Government, and the same individual is named in the context of the very large payments in this case. I stand to be corrected, but I understand that Prince Bandar is currently the head of intelligence in Saudi Arabia, and that he has held major roles in that Government, including that of ambassador to the United States.
	If the accusations cited are in any way correct, they raise major issues about the role of our Government and their conduct and accountability. We are all operating in the dark, and I have no other evidence, so let me describe what is argued took place in the context of Prince Bandar and the payments. The House will forgive me if I read for a few moments, because the process is complex and we all need to understand it:
	"According to legal sources familiar with the records, BAE Systems made cash transfers to Prince Bandar every three months for 10 years or more. BAE drew the money from a confidential account held at the Bank of England that had been set up to facilitate the Al-Yamamah deal...Both BAE and the government's arms sales department, the Defence Export Services Organisation (Deso),"
	which we have just discussed,
	"allegedly had drawing rights on the funds, which were held in a special Ministry of Defence account run by the government banker, the paymaster general. Those close to Deso say regular payments were drawn down by BAE and despatched to Prince Bandar's account at Riggs...Under the terms of a previously unknown MoD instruction from the department's permanent secretary, Sir Frank Cooper, the payment deal would have required Deso authorisation."
	It is just conceivable that that is all fantasy, dreamed up by somebody in the bath trying to sell a few more newspapers, but that is improbable. It is a well sourced story that appears entirely consistent with what many independent sources have argued in the past. If the story is true, or even approximately true, it raises issues about two major arms of government. First, there is the financial arm, which is the Treasury and the Bank of England. In the past, I asked the then Chancellor of the Exchequer whether he would explain his role in the matter, but of course, he transferred the questions to the Ministry of Defence, arguing that it was nothing to do with him. He has also said publicly that he knew nothing about it. I am sure that he did not, because the arrangement would not have operated at that level. As has been acknowledged in parliamentary answers, an account was run through the Bank of England. That raises important questions of public accountability about who monitored that account, who was responsible for it and what was their level of seniority, and we deserve answers.

Vera Baird: I have told the House what forces prevailed when the decision was taken. Surely that is the important point. I have no doubt that issues were raised, re-raised and considered, but it is clear that at some point this came to a head and a decision had to be taken on whether we should jeopardise our national security.
	The OECD has scrutinised the decision and the basis on which it was taken. The SFO and other UK authorities have co-operated fully with the OECD. Indeed, the OECD issued a press release expressing its appreciation for the openness with which we have given our explanations, although hon. Members would not suspect that for a minute, given what we have heard from the Liberal Democrats today. We are satisfied that the decision made by Mr. Wardle was compatible with the OECD anti-bribery convention. We do not believe that the convention was intended to stop national authorities acting to protect their national security.
	Opposition Members referred earlier to a legal challenge. That legal challenge brought by the Corner House resulted in the view that we were entitled to act to protect our national security—that must be a commonplace to everyone but the Liberal Democrats—which was borne out by Mr. Justice Collins, who refused permission for judicial review. He said the challenge was "bound to fail" on the basis that
	"it is clear that national security must prevail and that no State could be expected to take action which jeopardises the security of the State or the lives of its citizens".
	The claimants have now sought to renew their application for permission at an oral hearing, but the SFO will continue to resist the challenge. The head of the OECD Secretariat, Professor Michael Pieth, has himself apparently accepted that the OECD convention allows cases to be stopped on national security grounds, although he added the rider
	"in an extreme case of necessity".
	I am not sure on what basis he chose to add that qualification, but it should not be thought, asserted or pretended that the OECD has reached any finding that the halting of the SFO investigation amounts to a breach of the convention. It has not. It is, in any event, not the job of the OECD to inquire into individual cases or to act as any sort of judicial body. The UK remains a strong supporter of the OECD convention, and the UK authorities are co-operating with the OECD's review, which is about our anti-corruption laws in general.
	Mention has been made of an investigation in the United States. The Home Office, as the central authority for these purposes, has received a request for mutual legal assistance from the United States. That request is receiving appropriate consideration in accordance with procedures and the relevant law. Any decision on that request will ultimately be a matter for the Home Secretary. Beyond that, I cannot comment at this stage.
	I should like to speak about the future. I obviously accept that this case has been controversial—although not, I venture to suggest, as controversial as the Liberal Democrats would have us believe by stirring it up. I have tried to be as open as I possibly could be with the House today about the basis on which the director of the SFO took his decision. The same applies to the former Attorney-General and Solicitor-General, who went straight to Parliament when the decision was made, and they have been equally open in the numerous debates that have taken place in both Houses.
	I think we need to consider, however, whether there are ways in which these issues can have brighter light thrown on them, perhaps at an earlier stage. As the House knows, the Prime Minister has committed the Government to a programme of constitutional reform, with the express intent of being as open and transparent as possible and of divesting the Government of powers that can be exercised by Parliament or with closer parliamentary supervision. It is well worth considering whether other ways can be found of informing Parliament about cases of this sort—in particular, those cases where decisions are taken on the basis of sensitive intelligence that cannot be made public.
	I imagine that the Government would be in an altogether more comfortable position at large if we were able to say that, notwithstanding the total personal integrity and total constitutional propriety with which this advice was given, we had exposed material that underpinned it to a thoroughly security-checked group of Members of Parliament of all parties. That would have to be a group of people in whom obviously the public, but equally the security services and the prosecution authorities, had confidence.
	I can say that the former Attorney-General himself provided information about such a case, in which a similar decision had been made—similar in the sense that it was a decision not to prosecute in the public interest. He recently gave to the Intelligence and Security Committee some background material that contextualised the decision and the legal reasoning behind it. It may be that more use could be made of such a mechanism or other options may be available.
	The House will further know that, following the programme of constitutional reform set out in the Green Paper "The Governance of Britain", we will shortly issue a consultation document on the role of the Attorney-General and the Solicitor-General: they have identical powers and responsibilities, save that on the current configuration they are accountable to different Houses. One aspect of that consultation will concern the Attorney-General's responsibility for criminal prosecutions, and the Law Officers' accountability to Parliament. As part of that consultation, the Attorney-General and I will be happy to consider any proposals on such topics.
	I should remind the House what strong action the Government are taking against corruption worldwide. First, we are committed to reform of our law. That is far from straightforward. A draft Bill was subjected to pre-legislative scrutiny by a Joint Committee of both Houses in 2003—I was on that Committee, and if there is to be blame for delay, I shall have to share some of it as a Back Bencher, as we did not support that form of the Bill. We thought that it could be improved, and we sent it back. The Government responded, but the issues are hugely difficult, and we have asked the Law Commission to research the issues and prepare a draft Bill. That will include consideration of the experience of other countries that have implemented international conventions in this area. We have asked the Law Commission to prioritise that, and have made additional resources available to expedite it. It aims to produce a consultation document this autumn, with a report and draft Bill in 2008.
	Meanwhile, let me set out the SFO's vigorous pursuit of international corruption. My hon. Friend the Minister for the Middle East will say more later about broader steps that we have taken and are taking. The SFO, however, is pursuing a large number of cases, including some relating to BAE Systems.
	One such case concerns allegations of corruption in relation to a joint venture within the Czech Republic between BAE Systems and Saab to lease fighter planes to the Czech air force in 2002. The Swedes have started their own investigation, with the assistance of the SFO. On 10 May this year, the SFO called for a meeting at the headquarters of Eurojust at The Hague, with members of the Czech investigation team. The SFO tabled a proposal for a more co-ordinated approach to aid the investigation, which was agreed. Since then, there has been active co-operation, and meetings of the Czechs, Swedish prosecutors and the SFO took place last month in London.
	The SFO is also investigating allegations of corruption, again in relation to BAE Systems, within the state of Romania. The case concerns a contract to sell refurbished frigates to the Romanian navy in 2002. Again, excellent support has been afforded by the Romanian authorities and a letter of request has resulted in a visit to Romania by SFO investigators, during which excellent co-operation was achieved.
	An investigation is also taking place of a contract awarded by the Government of Tanzania in 1993 to upgrade its air traffic control systems. The contract was with Siemens Plessey, which was acquired by British Aerospace in 1998. The Prevention of Corruption Bureau of Tanzania has commenced its own investigation. The SFO has given considerable technical and legal support and advice to that body. SFO lawyers with junior counsel, an investigator and an experienced Ministry of Defence police officer visited Tanzania in May. Three members of the PCB are currently working on the investigation and are spending July at the office of the SFO, where they are receiving support and training.

Jonathan Djanogly: We can disagree on that point.
	The Conservative party believes that on the basis of the then Attorney-General's comments about the highly speculative nature of the inquiry and any final prosecution being unlikely, the decision to discontinue the investigation in view of the potential damage to our national security was inevitable and the only sensible course of action. However, it is important that lessons are learned from those events. The great failing of the motion is that it looks back rather than forwards. It does not even mention the need to improve the legislative framework to deal with corruption, although the hon. Member for Twickenham touched on that aspect in his remarks.
	There is clearly a need for the Government to provide greater guidance on the operation of the 2001 Act and its impact on payments to individuals abroad, in addition to the Minister's support for earlier and better transparency on the mechanisms of Government decisions. That was certainly a welcome development, and we look forward to receiving further details on it. As for BAE, we welcome its decision to appoint Lord Woolf to carry out a review of its ethical standards and I note that the Minister provided the House with an update on the other SFO investigations into corrupt practices of UK businesses overseas.
	Although we are unable to give our support to the Lib Dem motion, we hope that today's debate will reinforce the need for the Government to produce legislation to deal with the issues that have been highlighted by the motion. It is unacceptable to us that such an important issue as corruption is being dealt with in the form of a private Member's Bill, not least because it trivialises our need to comply with our obligations under article 1 of the 1997 OECD convention on bribery. The Government need to take responsibility for the issue and to move the agenda forward. I note and welcome the Minister's promise of a draft Bill and we hope that its delivery will involve less delay than in the past.

David Borrow: The Liberal Democrats have done a lot of mud-slinging against BAE Systems and the Government this afternoon. None of it amounts to anything, but it does damage the reputation of a fine company. I do not think that the Liberal Democrats truly understand the damage that they are doing. They have not come up with a single allegation of criminal wrongdoing, but they insinuate that there has been wrongdoing all the time. Fundamentally, things come down to one key issue: they do not believe that the Serious Fraud Office inquiry should have been stopped. They think that it was wrong of the SFO to stop it, and they do not accept the information that my hon. and learned Friend the Solicitor-General has given to the House. Liberal Democrat Members are nodding their heads; they just do not accept that information, but they have no evidence to justify not accepting it. They simply prefer to go along with certain people in the media and stir things up, hoping that they can continue to damage the Government, without realising that they are damaging the prospects for the continued employment of many of our constituents.

David Howarth: That raises an interesting point about the degree to which the Prime Minister is bound by international law, which has all sorts of interesting consequences that I will not go into today but that are important. Nevertheless, the point that I was trying to make was who made the decision. The decision in December 2005 to continue with the investigations was made by the Attorney-General, and it was the right decision.
	With regard to the September Shawcross exercise, again information comes from Ministers to the Attorney-General, and again the document says that the Attorney-General made the decision. At that point the issue was national security. At that point what was being put to the Attorney-General was that the relationship between this country and Saudi Arabia might be prejudiced and that therefore there might be a national security consequence. At that point, again, the Attorney-General took the decision that the investigation should continue.
	In the final exercise, in December 2006, we are told—there is no reason to disbelieve this—that the director of the SFO, not the Attorney-General, took the decision. Mr. Wardle looks at the papers that have come to him from the Prime Minister's office, from Sir Richard Mottram, and takes the initiative to talk to our ambassador in Saudi Arabia, and at that point, the director decides to call off the prosecution for reasons of national security.
	The Attorney-General does not take that decision; he has a different opinion about the case. His opinion is that not only is national security an important issue, but that the prosecution will not succeed, because he has a different interpretation of the law. Why is it the Attorney-General twice took the decision and the director once? What makes a difference in these decisions? This comes back to the vagueness of the idea of superintendence. That term cannot be the basis in the future of the relationship between the Attorney-General and the director or the DPP. We need far more clarity.

David Howarth: I shall send the hon. Gentleman the documents and he can work it out for himself. [ Interruption.] I do not think that it is right to read out the names of the Government's lawyers on the Floor of the House, although I shall if he carries on asking that question.
	Let me just move on to my final point. [ Interruption.] I do know. Okay, I shall now read out the names of the Government's lawyers. They are Philip Sales QC, Hugo Keith and Karen Steyn, and obviously the instructing solicitor was the Treasury solicitor.

David Howarth: No, I shall not give way to the hon. Gentleman. He never makes any sense, and he does not allow the debate to continue on any rational grounds.
	Let me move on to my final point, which is not a legal point, but a point about the decision that had to be taken. I disagree with those of my colleagues who think that the decision was easy. It was very difficult, but nevertheless, the wrong decision was made. The question is what should a country do if there is a threat to its national security from the very people who are being investigated for illegality. I do not deny, as some people might, that the threat was real; the question is what does one do if that is the situation that one perceives.
	The Government gave way to the threat, but the other argument is that doing so helps the fight against neither terrorism nor corruption. If that is what happened in this case, it sends out a very dangerous signal. In the long run, there is a greater threat to national security in giving way to such a threat than in resisting it.
	Interestingly, Mr. Wardle told the Constitutional Affairs Committee that from the documents that the director was shown, Sir Richard Mottram did not take that risk into account. Again, it can be seen in Mr. Wardle's evidence to the Committee that it was assumed that none of this would ever come out, and that the whole thing could be swept under the carpet. If that is true, the Government have added incompetence to their weakness of will.

David Howarth: There are two points: first, what was done was wrong; secondly, it was a mistake. It was wrong because it is wrong to give into such blackmail. It was a mistake because in the long term, giving into such pressure is a greater threat to national security.

Kim Howells: Despite the subject of the debate, which is very wide-ranging—"The investigation of alleged corruption overseas"—much of it has focused on the decision by the director of the Serious Fraud Office to drop the fraud investigation into BAE Systems. There is only so much I can add to that discussion, and my hon. and learned Friend the Solicitor-General has dealt carefully and in great depth with the events that led the director to make his decision. As my hon. and learned Friend said at the start, that decision was made by the director alone, although—we have always been very open about this—representations were made to him about the need to safeguard national and international security.
	It is difficult to imagine what alternative path he, and we, should have taken. The Government were given good reason to believe that there is a real and present danger to their security and intelligence co-operation with a country that plays a vital role in helping us to ensure the safety of our citizens from threats posed, among others, by al-Qaeda terrorism. I have been working with our middle eastern partners for long enough to assure the House that the Kingdom of Saudi Arabia is a key partner in tackling al-Qaeda threats to the lives of British nationals and other civilians at home and abroad.
	It would have been wholly irresponsible for us to have ignored that information. It would have been wholly wrong not to make the Serious Fraud Office aware of it, and it made a decision based on that evidence. It was not an easy decision, and I do not think that anyone here today claimed that it was. Of course it was not; the investigation was not begun with the intention of calling it off further down the line. However, on balance, it was the right decision, and we are confident that it was compatible with the OECD convention. It has been implied this afternoon that we have set a precedent by the decision of the director, Robert Wardle. We have not. Faced with the same set of circumstances and the same evidence of the implications for national and international security, we would make the same representations to the SFO. The idea that there is now a carte blanche for companies from this country to bribe at will is patently absurd, and I urge colleagues to think hard before throwing the sort of allegations around that imply otherwise—some of which we have heard today.
	As my hon. and learned Friend the Solicitor-General has told us, the SFO is pursuing other investigations vigorously, including some, as she reminded us, into BAE Systems. We have made it quite clear that no company or individual is above the law. We expect high standards of business conduct, and compliance with the law of the United Kingdom and that of the countries in which they operate, from all UK defence companies. We expect those high standards to be observed in any future contract in respect of defence sales to Saudi Arabia. We would expect the high standards operated by British companies to be recognised and respected by Members of this House from all parties.
	Companies such as BAE Systems are very much aware that their world-leading products and services need the benefits that a good reputation bring in international sales. They also know, and it is a sharp reminder to all of us, that convictions for corruption in this country can mean a seven-year jail sentence and/or an unlimited fine. That should focus everybody's minds.
	The Government are second to none in the transparency and rigour of their regulation of arms exports and dual-use goods. I remind the House that before manufacturers are allowed to export, they submit applications for export licences to the Department of Trade and Industry, as it was. Hon. Members will excuse me if I cannot remember what the new Department is called —[ Interruption. ] I believe it is DBERR—the Department for Business, Enterprise and Regulatory Reform. The Department consults Whitehall—the Foreign Office, the Department for International Development and the Ministry of Defence—to check whether an export is legal and consistent with the United Kingdom's obligations. We abide rigorously by the consolidated EU and national arms export licensing criteria. The earlier implication, therefore, that we are somehow not up to the mark internationally, is completely spurious.
	Since the debate is—nominally at least—about the wider issues of corruption and bribery, it is worth reminding ourselves of the Government's record on the issues. The fact is that in the past 10 years, the world has moved on a great deal from a time when many powerful Governments and businesses turned a blind eye to practices such as bribery and kickbacks. There is now a global coalition of non-governmental organisations, consumers, Governments and companies helping to put the frameworks and mechanisms in place to stamp such practices out. The United Kingdom's role in that shift has been considerable, involving activities and alliances that are designed to root out corrupt behaviour.
	We are pushing for the implementation of the United Nations convention against corruption. The provisions on improving international co-operation and on asset recovery are particularly important. We are implementing the third European Union directive on money-laundering to make it even harder to move criminal money, including looted assets, through our financial system. The Department for International Development has put £6 million into strengthening the UK's law enforcement capacity to investigate allegations of foreign bribery and the laundering of corrupt assets by political elites.

Kim Howells: As my hon. and learned Friend the Solicitor-General told us earlier, this is an important matter. She accepted some guilt for slowing the process because she wanted to be vigorous in the examination of proposed legislation. Like the hon. Gentleman, whose views I very much respect, I would like to see the process move more quickly than it has, and I hope that what we have heard during the debate helps to do that. I understand that the pre-legislative scrutiny Committee took a lot of time over the matter, and did not much like the shape of the proposed legislation. It has to take another look at it, but I very much agree with the hon. Gentleman; it is a priority, and it must go ahead quickly.
	We have been working with Transparency International on funding elements of a major anti-corruption programme in south Asia, focusing on improving transparency in public procurement. Of course, it is this Government who have shown long-running leadership on the Extracted Industries Transparency Initiative. We were involved with the beginning of the Kimberley Process to stamp out "conflict" or "blood" diamonds, and that has brought results. The Extractive Industries Transparency Initiative is widely recognised as the international standard for the management of public revenues from oil, gas and mining.
	Our support for the work of the Nigerian Economic and Financial Crimes Commission has helped it to become the most successful anti-corruption body in Africa, reporting more than 150 convictions and the recovery of $5 billion since 2002. There is also the Kenya textbook project, where we transferred funds to individual school bank accounts, so that money was more likely to go towards education and less likely to be siphoned off along the way.
	I believe that probably no Government in the world have a better record than ours on fighting bribery and corruption worldwide. It is damaging nonsense to claim that the Serious Fraud Office's decision to discontinue a single investigation because of our concern to safeguard national and international security has undermined all that work.
	Transparency International's latest independent analysis says that the United Kingdom ranks as the least corrupt of the G7 countries. I am not sure whether that is damning with faint praise but it says something. We are not complacent about the challenges in the United Kingdom or abroad, and we will take them up with energy and determination.
	The hon. Member for Twickenham (Dr. Cable) made his usual statement at the beginning of the debate. He is, of course, a great master of dubious poetic phrases and he has a resilient mud-throwing arm. Today, he spoke about money, and we heard that the Government's money is not allocated, spent or exchanged but "swills around". He is a great expert at diving into the swill tub. He throws its contents at any convenient target, regardless of the impact of his efforts. This afternoon, he threw some at Sir Richard Mottram's reputation by implying that he is part of a conspiracy that dates back to the al-Yamamah arrangements. He did that despite the fact that Sir Richard is one of our most distinguished and respected public servants, who has played a crucial role in helping this country reconfigure and strengthen our defences against the real and present danger that terrorists within and beyond our shores pose to the United Kingdom.
	I therefore hope that hon. Members will vote against the absurd Liberal motion and support the Government amendment.
	 Question put, That the original words stand part of the Question:—
	 The House proceeded to a Division.

Vincent Cable: I beg to move,
	That this House notes with concern the growing gap in wealth and income inequality since 1997; calls for the publication of Office of National Statistics wealth inequality data since 2003; regrets that the complexities of the tax system allow wealthy individuals to utilise tax loopholes; notes with alarm the increasing number of wealthy individuals who are non-domiciled for tax purposes; recognises the increasing burden that this places on middle-income families who are disproportionately affected by, in particular, stamp duty and inheritance tax thresholds, given that these thresholds have not been recently re-assessed to reflect large increases in house prices; and proposes the tax system be amended to ensure that the wealthiest individuals pay their fair share.
	I am grateful for the opportunity to introduce a debate on this subject on behalf of my Liberal Democrat colleagues. I am also grateful to House of Commons staff who, after much deliberation, admitted the word "fair", which I believe was quite controversial.
	There are usually two broad approaches to debates on taxation. One is the argument about the level of taxation in the economy. Indeed, arguments have raged backwards and forwards between the parties as to whether as a country we are over-taxed or under-taxed. This debate is not about that subject. As I understand it, although the Conservatives approach the problem from the opposite direction, they broadly accept the current share of taxation in the economy, at least as an initial starting point, and are arguing about whether tax should be applied in a more sensible and equitable way. We believe that within the current level of taxation it would be possible to have a system that is fairer, simpler and greener. I want to focus on the first of those—the concept of fairness, by which I mean paying greater attention to the distribution of income and wealth.
	To introduce some precision into the concept of fairness, it would probably help at the outset to monitor some of the recent trends in income and wealth distribution. It is fairly clear that since the Government came to power in 1997, income distribution as measured by the standard Gini coefficient initially deteriorated. It was rather odd that the Government were talking about fairness and equality after a long period of Conservative Government, yet for a considerable time income inequality widened. Subsequently, it has levelled off and is now roughly back to where it was in 1997. I guess that one of the major contributory factors was tax credits. Although Members on these Benches and on the Opposition Benches generally have been very critical of the tax credit system because of its administrative failings, there is little doubt that many people have benefited from it and it has contributed to the stabilisation, at least, of the income inequality measure.
	The distribution of wealth, however, has become significantly worse. If we track the share of marketable assets held by the top 1 per cent., 5 per cent. or 10 per cent. of the population, we find that their share increased from 1997 to 2003 while the share of the bottom 50 per cent. shrank. Unfortunately, we cannot track what happened since 2003 because the Government no longer publish the data. They say that there are "methodological problems" with that. It is a tricky thing to measure, so I will be generous and acknowledge that that could be the reason, but it could also be rather embarrassing and so they do not wish to publish such data. None the less, we do not have data beyond that date. Such as we have suggest that the distribution of wealth was deteriorating during the Government's first six years in office.
	The context in which we can assess the trends in income and wealth is difficult because of broader global trends. However progressive any Government wish to be, it is difficult to maintain an approach to income and wealth equality of the kind that was possible in more closed economies. We now have virtual freedom of movement of capital, and capital migrates to areas with the highest rates of return—that is the way the market works. That is true also of many people with high levels of skill and entrepreneurial ability; they pursue the best returns. It is probably also true that, because of the large-scale entry of China and, to some extent, India in the world economy, real wages have come under pressure everywhere. It is difficult for any Government in any circumstances to maintain very close levels of equality in an open economy. I start out by recognising that.
	For that reason, it is probably best to look at comparative measures of how other rich countries perform. I recently dug out some data on the distribution of wealth. There is not a great deal of it around and it is difficult to compile. One set produced by the Central Intelligence Agency—perhaps an original source—which was put together by the Economic and Social Research Council, shows that although Britain has a more equal distribution than the United States, it has a substantially less equal distribution of family wealth than almost every other developed country. It is much worse than Scandinavia, France, Germany and most eastern and southern European countries. The same relative conclusion is reached in a parallel study carried out by an organisation called WIDER—the World Institute for Development Economics Research—which I believe is linked to the United Nations university.
	Although it is understandable that because of the mobility of capital and skilled labour and the pressure of labour competition through trade equality of income and wealth is under pressure, Britain seems to have become a relatively unequal country. One can reasonably ask that the Government do not pursue policies that make those disparities worse. I would like to concentrate on several of those policies, related specifically to taxation as it applies to wealth. We do not have a wealth tax in this country—it is probably no longer a practical concept, though the Swedes and French have tried it—but we have proxy taxes for wealth. We have taxes on capital gains, and taxes on stamp duty and inheritance, so I want to consider how those systems work and particularly some of the exemptions for non-domiciled—one of the main concessional areas of tax policy. There are, of course, much wider aspects of tax policy relating to income tax, tax credits and council tax, which colleagues and others might wish to refer to, but I will narrow my remarks to the areas that I have defined.

Vincent Cable: If the right hon. Gentleman read the document more carefully, he would discover that—if he is talking about the collection system, which has been controversial in the Communities and Local Government Committee—we are in favour of giving local authorities discretion. Surely the right hon. Gentleman, who I know is a highly economically literate man, would accept that where there is pollution and externalities, they have to be properly charged for. That applies to waste disposal as to other things.
	The first of the major exemptions given by the Government is in relation to capital gains tax. In 1997, the system inherited from the noble Lord Lawson had the merit of simplicity, as capital gains were taxed at the same rate as income. The system worked reasonably well and was accepted by businesses as providing reasonable incentives. I recall—the right hon. Member for Wokingham (Mr. Redwood) is probably the only other Member present who was part of the discussions—that a radical change in the capital gains tax regime was introduced by the hon. Member for Coventry, North-West (Mr. Robinson).
	The key new concept was taper relief, whereby individuals and businesses should be granted relief depending on the length of time that they held on to their assets. That was severely criticised at the time, certainly by the Liberal Democrats, and, I believe, by the Conservatives too. The argument was advanced that the concession would prove to be very expensive, that businesses would find ways of collecting the relief without changing their behaviour, and that trying to use taxation in that way would eventually prove counter-productive. In retrospect, we know that businesses have taken enormous advantage of the taper relief rules in ways that are quite unconnected with the original intentions to encourage ventures and to encourage individuals to hold their assets for long periods to reduce what was called the "churning" of investment.
	The issue has surfaced in the context of so-called private equity companies. I shall not use this debate as an opportunity to speak for or against that form of corporate governance—there are arguments for and against it—as it is not the right context. Some of those companies, however, have availed themselves of generous tax relief, and have created the situation in which they hold on to assets as a result of carried interest for several years—two years if they are classified as a business—and pay as little as 10 per cent. in tax. That gave rise to the popular story about private equity companies paying tax at 10p in the pound, and their cleaners paying tax at 20p in the pound.
	Criticism has come from outside the industry, some of which is well informed and some less so, but it is worth quoting one of the leading advocates of that method of corporate governance, Jon Moulton, of Alchemy Partners, who has been doing that kind of business for many years. He said in relation to his own business:
	"in this country, the exchequer loses out. The chancellor should be thinking again about the tax revenue he loses"
	as a result of leveraged buy-outs. He acknowledges the enormous cost to the Exchequer of the concession that his industry has been granted.
	One could argue that that problem could be dealt with selectively. There was a memorandum of understanding under which that form of carried interest was allowed tax relief, and that could simply be closed and dealt with on a selective basis. That would probably be unfair to the private equity industry, however, as such companies are only one of several types of company taking advantage of such a generous loophole.
	To give an example that has nothing to do with private equity, in  Property Week a few weeks ago, the retiring chairman of British Land, Mr. Ritblat, described his experience:
	"The reason why I sold the shares is terribly simple. The benefit of business asset taper relief when you are still the employee of a company is colossal, the difference of 10 per cent. tax to 40 per cent. Selling them now means I save £20 million in tax. Tell me one person who wouldn't want to save themselves £20 million?"
	He was not claiming in any sense that he had contributed to entrepreneurial endeavour; he had simply found a way of managing his property portfolio in a way that saved himself enormous amounts of tax as a result of the Government's taper relief concession. We would argue that that tax relief has been grossly, excessively generous, with very little positive economic outcome. It is a strange form of tax, as the total tax yield to the Government—£4 billion—is considerably less than the Government's own estimate of the value of the relief, which is £6 billion. We would argue for going back to the much simpler system that the Government inherited in 1997.
	The second group of tax measures that I want to discuss is those relating to non-domiciled investors. The concept has been around for roughly two centuries—since income tax was introduced. From its inception, it was understood that it would be fair and an encouragement to the City of London, which was then in its embryonic form, for people to be taxed on their income in Britain but not on the income that they accrue overseas if they have good claims to be non-domiciled and not to have strong, traditional connections with this country. That developed in an ad hoc way, and was formalised first after the first world war, and secondly after the second world war.
	It is clear that that system has caused some dissatisfaction, probably expressed most cogently and aggressively by the current Prime Minister when he was the shadow Chancellor of the Exchequer. In 1994, he undertook to close the loophole under which
	"those who are non-domiciled are able to live in the UK free of tax".
	He did not lose sight of that concern: in the pre-Budget report of 2002, he returned to the subject. He argued that we need to revisit the question:
	"It is generally accepted as fair that those with a long-term connection"
	to a country
	"owe a special obligation to support the social structures of the state."
	He initiated an inquiry into the non-domicile tax regime in the following terms:
	"the current rules determining residence and domicile have developed over the past 200 years, are complex and poorly understood, and do not reflect the reality of today's more integrated world".
	He initiated an inquiry in the Treasury with a view to tightening up those rules.
	The spirit of the age was also expressed by Mr. Peter Mandelson, as we can now call him, who described the new Government as "intensely relaxed" about people getting filthy rich, as long as they paid taxes. He was anxious that the Government should close down the loopholes.
	The question arises: how do the loopholes operate, and do they operate entirely in accord with the spirit of non-domicile?

Vincent Cable: The hon. Gentleman is right that there is a trade-off, and it would be foolish to be dogmatic one way or the other.
	I have another quote on non-domicile tax relief from a leading City tax specialist, Richard Murphy:
	"When I have sat with Treasury officials and asked them why don't they do something about this, it is because they are frightened the money will leave London and they think there is a benefit to this."
	We say, "Quantify the benefit." That is all that we are asking for. The benefit could indeed be huge—as the right hon. Member for Wokingham (Mr. Redwood) said. If so, why is the Treasury so frightened of making the case? One would have thought that it would be a straightforward and easy case to make, but in almost five years of deliberation the Treasury have clammed up completely in terms of giving any facts or analysis of the situation.
	One reason why the Treasury ought to focus on this question is that it appears to be easy to get non-domiciled status. I was not aware that that was the case until one of my staff who has grandfather from Switzerland made inquiries. He asked, "If I wanted to become a non-domicile taxpayer, how would I do that?" Those who wish to do so get a four-page form which must be filled in. So far as I am aware, there is no extensive vetting by the Inland Revenue. They just proceed, even though they might have very tenuous connections with the UK. It might be for that reason that the number of those involved is rising rapidly: there were 105,000 in 2003-04, 112,000 in 2004-05, and perhaps the Minister will tell us how many have been granted that status since.
	I do not wish to make a dogmatic case for or against this form of tax relief for very wealthy people. Like the hon. Member for North-West Leicestershire (David Taylor), my instinct is that there could be some sensible limitations. One obvious limitation would be to restrict the number of years for which it is possible to enjoy non-domiciled status. Allowing that period to go back to the era of people's grandparents or parents seems to me to be remarkably generous. A period of 20 years, which would align with the inheritance tax rules, might be a fair compromise. It would also be fair and right that even if we were to allow non-domiciled investors to continue, in the interests of the City, to enjoy tax relief on their overseas income—although I should say in passing that the Americans do not allow that—some specific exemptions, such as that capital gains tax is not subject to anti-avoidance rules, clearly should be dealt with.
	I hope that what I have said will stimulate debate on the non-domiciled rules—I do not think we have ever had one during my 10 years in Parliament. I have said a little about capital gains tax, and I wish to talk briefly about a couple of other major taxes of importance to the very wealthy.

Andrew George: I apologise for dragging my hon. Friend back to property taxation and capital gains tax on second homes. The issue is not just raising fair taxes on those with wealth, but using the available records of those who would have to pay capital gains tax as a means of rationing properties through the planning system if a change-in-use class order were introduced as our party proposes. Does my hon. Friend agree that the issue is not just fair taxation, but using the tax system to ensure that properties can be rationed so that those in the most desperate housing need, rather than second home owners, get properties.

Vincent Cable: I would quibble a little over the word "rationed", but the sentiment of my hon. Friend's intervention was helpful and supportive, and I agree with him.
	I do not want to spend long on inheritance tax because those who suffered through discussion of the Finance Bills of the past few years—my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy) soldiered on the front line—have talked about inheritance tax ad nauseam for hours, if not days. There are some odd features about the way in which the inheritance tax system has worked out in recent years, and the numbers are simple. Since 2000, the number of estates valued at more than £2 million for inheritance tax has declined by 8 per cent., in the context of an enormous increase in the number of properties worth more than £2 million. The number actually paying inheritance tax has fallen. On the other hand, the number of estates valued at between £300,000 and £500,000 has increased by 20 per cent. Essentially, the tax is voluntary for those at the top end of the scale because they have access to sophisticated advice, while middle class families—that is essentially what we are talking about—who are not familiar with the various devices available to them, particularly through gifts, are paying the tax, unaware of the potential for avoiding it. Clearly that is fundamentally unsatisfactory.
	I shall summarise a few of our proposed steps to make the system fairer—they are modest, and part of a much more comprehensive approach to taxation—to bring together the threads of my argument. First, it is clear that the reliefs on capital gains tax—such as taper relief—should go because they are expensive, unfair and reward wealth unsatisfactorily with no evidence that they produce significant economic change of behaviour.

Vincent Cable: That is a fair question, and we have reconsidered the issue in the light of discussion with people in the investment industry. We did indeed propose a substantial reduction in the allowance, and we have rethought it. Our current proposals, which are set out in our report, make no suggestion of changing the level of allowances for the simple reason that a large number of small investors would otherwise be caught. The hon. Gentleman asked a sharp question, and picked up on the fact that our proposals suggest a modest change.
	Secondly, we propose some tightening up of the non-domicile rules. We do not want to abandon them, but we want to change the residency requirements, and to cut back on some of the provisions, particularly concerning capital gains tax. Thirdly, we want to tighten the rules applying to corporates buying property and escaping stamp duty. We want to clamp down on inheritance tax avoidance by extending the seven-year rule on gifts to 15 years.
	Behind those policies are bigger ones, notably, as the Conservative Front-Bench spokesman intervened to say, abolishing council tax because in relation to income it is highly regressive, and much the most regressive of all forms of taxation. We want to scrap it entirely, and to replace it with a tax based on people's ability to pay—their income. That would help to improve the overall equity of the tax and distribution system.
	The Government have talked a great deal about progressive consensus and fairness. They have presided over a system of distribution of income and wealth that has not improved income and has deteriorated in terms of wealth. Taxation clearly has a part in correcting that, and I commend the motion to the House.

Andy Burnham: I invited a response on the point that I was making. The debate was called by the Liberal Democrats and I began by laying out some of the Government's policies. The figures that I have given for the Liberal Democrats' policies are staggering for a party that has come to the House this evening talking about narrowing the income gap and lecturing the Government. I note that there has been no effort to repudiate my analysis.
	We should think about the income distribution effects of the Liberal Democrats' proposed changes and then about their proposal for a local income tax. In his report on local government finance, Sir Michael Lyons concluded that a local income tax was feasible, but he added that it would mean
	"substantial increases in tax for the working population."
	In addition, green taxes would have to bear the brunt of achieving the huge savings that would be needed to deliver a 4p income tax cut. What on earth would that do to the taxes on travel faced by the average family? Would an annual holiday be put beyond the reach of the average family in my constituency? I believe that they would struggle if the cost of holidays were to increase significantly. The hon. Member for Twickenham was noticeably silent on all those points and I am amazed that he did not refer once to his party's proposals in his speech.
	Let me talk about some of the changes that the Government have made to tackle avoidance and to close loopholes. We have taken steps to make sure that everyone pays their fair share of taxes and we have acted in respect of each of the personal taxes. In response to contrived avoidance schemes to avoid income tax and national insurance contributions, usually marketed to a small number of individuals receiving substantial City bonuses, we made a clear statement in December 2004 that future schemes would be legislated against with effect from that date, not from the date of the legislation. We estimate that, had that statement not been made, more than £1.7 billion of tax and national insurance contributions would have been avoided through such schemes.
	More recently, we have acted against abuses of sideways loss relief, with a fair and proportionate response that allows SLR to be used for legitimate business reasons but protects £760 million—three quarters of a billion pounds—in tax. We have also acted to prevent avoidance of inheritance tax by introducing pre-owned asset rules in 2004 that take a fair share of tax when someone gives away an asset but continues to benefit from it. On capital gains tax, this year's Finance Bill, which is to be debated in another place tomorrow, introduces a targeted anti-avoidance rule designed to put an end to the contrived schemes that avoid tax by generating artificial losses. On stamp duty land tax, the same Bill permanently closes down schemes that avoid tax by adding extra stages to the sale of property from one party to another.
	The changes to capital gains tax and stamp duty land tax in the Finance Bill have been introduced as a result of information received by Her Majesty's Revenue and Customs through the disclosure regime that was first introduced in 2004. That regime, which obliges the promoters of avoidance schemes to disclose them to HMRC is allowing us to act against avoidance more swiftly and in a more targeted way. The capital gains tax and stamp duty land tax measures demonstrate that the regime is having a deterrent effect, with marketed schemes decreasing significantly. In addition to acting against contrived avoidance, we are tackling tax evasion. For example, HMRC has obtained details of hundreds of thousands of offshore account holders from a number of banks and expects to collect hundreds of millions of tax that had been evaded, as well as interest and penalties.
	As well as delivering rising prosperity for all in what the IMF described in February as a
	"decade-long record of strong and steady macroeconomic performance"
	Britain is now benefiting from the longest period of sustained low inflation—certainly the longest in my lifetime. We have the second-highest GDP in the G7, instead of the lowest, as when we entered office, and growth that is not only strong—stronger this year than in the euro-area and in the United States—but sustained. As I said, we have experienced 59 quarters of uninterrupted growth—the longest period on record for any G7 country. Even if the UK's economy were to stop growing tomorrow, which of course we do not expect it to, it would take at least nine years for any other major economy to overtake that record. That macro-economic performance, that stability and that strength in our economy have delivered rising standards of living and rising prosperity right across Britain, and it is important to say that this is not a zero sum game. We do not have to make some people poorer to make others richer; we have shown that over the past 10 years. We want our good macro-economic performance to continue, and we want Britain's economy to continue to succeed. We are confident about the position that we are in, but of course we must not be complacent. There are challenges that we need to face, including that of globalisation.
	As technological advances and falling transport costs break down the barriers to trade and economic integration, we have to be watchful, and we must ensure that the increasingly interconnected world economy continues to work well for Britain and our national interests. Capital and labour are increasingly mobile; that is particularly true of highly skilled individuals, who are increasingly in demand as the world moves towards a more skills-based economy. That presents some challenges, but also huge opportunities, and the UK is making the most of them. With skills increasingly at a premium, we will benefit from our hugely talented work force. That is partly the result of our high-quality education provision and training, but it is also because of the openness and internationalism that characterises the City; one quarter of London's senior managers in financial and business services come from abroad.
	I will pause to reflect on the City for a moment, because its performance in recent years has been truly remarkable. London is now established as the world's leading global financial centre, and Britain has a trade surplus in financial services that is twice as large as any to be found elsewhere in the world; it totalled £26 billion last year. The wealth that the City generates is critical to our economy, and we have worked hard to maintain its competitiveness. We will continue to work hard to build on the City's leading position, and we will work with the City, including through the high-level group that the Prime Minister set up when he was Chancellor of the Exchequer. I encourage the hon. Member for Twickenham and his colleagues to reflect on the City's strong position when they consider the changes that he proposed today.
	The hon. Gentleman spent a good deal of his speech talking about the rules affecting non-domiciled individuals. That is a complex area, but we are talking about a relatively small group—it is made up of some 112,000 people, according to the latest estimates. That group declares some £9.8 billion through the self-assessment process, but it is important to note that it contributes £3 billion in tax, and it behoves the hon. Gentleman to recognise that. That is a significant contribution, and it is not correct to perpetuate the idea that there is serial avoidance by that group.
	It is not right to suggest that it is easy to gain non-domiciled status. A person's domicile is the country to which they are attached from birth to the age of 16. A person usually has the same domicile as their father, and at the age of 16, they may have a domicile of choice, often through the nationality of their father. It is not my understanding that someone could gain non-domiciled status on the back of a tenuous link—I think that that is the phrase that the hon. Gentleman used—with a country. If the hon. Gentleman writes to me with more details on that point, I will be interested to read what he says, but it is not easy to change status in the way that he suggests.

Andy Burnham: I saw some press coverage of that arithmetic. As the hon. Gentleman knows, I have not been in the Treasury for long and he is well versed in these matters, but I suspect that in his heart of hearts he knows that these are optimistic policies, to say the least. That was the word that I heard civil servants use today to describe some of these plans. We all know what optimistic means in this context, and if the average family realised what burden would be loaded on to their petrol bill or their annual family holiday bill to make some of this tax burden even vaguely fundable, they would have some serious second thoughts about what the hon. Gentleman and his colleagues have in mind.
	During the last few days there has been a significant debate on taxation as it affects families, particularly married couples. Not having a great deal to do at the weekend, I read through all the press cuttings, and it was interesting to see the different views beginning to emerge from the Conservative party following the publication of the document last week by the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith). The key proposal for a marriage tax break would take billions of pounds out of public services and support for all families and help married couples at the expense of other children. It was interesting to see how quickly some began to back off. The right hon. Member for Wokingham (Mr. Redwood) characteristically had the courage to go on the record and he was quoted in  The Times on Friday as saying:
	"For the life of me, I cannot see why one should give a prize to people with no children, simply because they happen to be married."
	One can only speculate as to the identity of the "modernising Tory MP" quoted in  The Times on Friday as saying:
	"This is straight back to the 'nasty party'. God knows why David has done it."
	It is interesting to follow the ups and downs of the debates in the Tory party that seem to be ebbing and flowing outside of the public view. But even more staggering when one reads the document published last week is that not only was there the cost of the marriage tax break, but, on a conservative estimate, some £10.9 billion of spending commitments. How on earth all that adds up when one considers the policy of sharing the proceeds of growth is beyond me. I hope that the hon. Member for Runnymede and Weybridge will enlighten us this evening when he makes his remarks. We agree with two conclusions of the Conservative social policy group, however. In December 2006, it concluded:
	"For the past 10 years, inflation has been low, the stop-go cycle has given way to continued economic growth and there has been full employment."
	We certainly endorse those conclusions.
	All the actions that the Government take will go to continuing to improve the competitiveness of our economy, coupled with reforms that will continue to increase fairness in the tax system. We will continue to make those changes because we need to recognise the realities of a modern, global economy, with the increasing mobility of labour. The Chancellor has made it clear that on many of the issues that the hon. Member for Twickenham has raised this evening, such as taper relief or the residence and domicile rules, we will not make changes without thinking them through. We will not have the knee-jerk reactions that some call for these days. Changes to the tax system must be properly considered and carefully thought through in the context of what is best for the economy overall, and that is what we will do.
	This issue is about striking the right balance—a careful balance between competitiveness and fairness. It is about recognising that we do not have to penalise the rich or make them poorer to make everyone else better off, although we expect them to play by the rules. We have shown that we will take action to ensure that they pay their fair share of tax. This Labour Government have shown over the past decade that we can strike the right balance for Britain, and raise prosperity for everyone while providing the most support to those people who most need it. The incomes of the poorest household have grown faster than those of the richest, and we have increased fairness in our society by cutting child and pensioner poverty.
	On the back of a tax announcement last week, the Liberal Democrats have moved this evening a motion that on any reading does not enhance the position of people earning the least in our society. On that specific point, I challenged the Liberal Democrats to come forward with measures that would, as the hon. Member for Twickenham said at the beginning of his remarks, close the gap in wealth and income and produce a fairer distribution of wealth. The loading of taxes on to petrol and aviation would have a major regressive effect and hit hardest those families on the lowest incomes. The 4p cut in income tax would benefit the highest earners in society, not those in the lowest decile. The local income tax would load taxation on to the working population, and move it away from people who do not work. One must consider the combination of all those factors when analysing the package that has been put forward.
	By contrast, we have undertaken a comprehensive programme of tax system reform, which has increased fairness by closing tax loopholes. We have tackled tax avoidance and provided support for workers, families and pensioners, cut child and pensioner poverty and struck the right balance between fairness and competitiveness. By striking that balance and making tax changes only after thinking through their impact, rather than seeking short-term headlines to assuage fears about by-election performances, we have shown that by making the right decisions and thinking them through properly, we can deliver macro-economic stability, success and rising prosperity for the whole country. I urge the House to vote against the Liberal Democrat motion, and I commend the Government's amendment to the House.

Philip Hammond: The policy review is already under way. The European School of Management has undertaken to produce a report on the overall climate for private equity and venture capital in the UK, including the tax treatment of the sector.
	Perhaps it will help the hon. Lady if I tell her that the shadow Chancellor has set out four tests, which any reforms of the tax system must pass. First, they must not damage the competitiveness of the UK economy or the health of our financial services industry. We want Europe's private equity business to be based here in Britain, providing jobs and prosperity for British people. Secondly, we should reward those who take genuine risks. Thirdly, the tax system should focus on rewarding long-term investment and, fourthly, any reforms should be part of our broad project to make the tax system simpler and fairer.
	Leading figures in the industry have made it clear that, if something looks like income, it would be peculiar not to tax it as income, but if it looks like genuine risk taking and entrepreneurship, we should do everything we can to encourage it. One of the dangers, which the Chief Secretary mentioned, is that the original purpose of taper relief may get lost. It is a question of throwing out babies with bathwater.
	Taper relief was introduced as an alternative to indexation to protect inflationary gains from inappropriate taxation and as an incentive to entrepreneurship and risk taking. We must ensure that changes that are proposed or discussed do not lose sight of that original incentive. The proposals that the Liberal Democrats included in the paper that they published last week would hit not only private equity houses but small-scale entrepreneurs and genuine venture capitalists who fund British start-ups. The abolition of taper relief and the reduction in the annual allowance to £1,000 would have that effect. The hon. Member for Twickenham—I am glad that he is back in his place—said that that was not clear, but let us examine the figures.
	When the Liberal Democrats published their paper last August, they said that the benefit to the Exchequer of scrapping taper relief would be £4.5 billion and that that of reducing capital gains tax allowance to £1,000 would be £1.7 billion. That is £6.2 billion altogether. However, in the paper that they published last week, they said that the benefit of scrapping taper relief—the hon. Member for Twickenham claims that that does not include the reduction of the allowance to £1,000—would be £6 billion. That is £200 million less than last August's figures, which suggests that the tallied up benefit includes the reduction in the allowance.

Philip Hammond: If we are to understand that in the course of eight months the estimated yield from scrapping taper relief has increased from £4.5 billion to £6 billion, it makes me wonder on what I can rely in the overall equation that the Liberal Democrats have calculated. [Hon. Members: "They are the Treasury's figures."] We are, therefore, to work on the understanding that the Liberal Democrats have decided this July to keep the £8,800 annual allowance, which, last August, they intended to scrap. Fine. That is perfectly clear and I am grateful for that clarification.
	Let me say something else to the Lib Dems about their proposals on capital gains tax. I do not know what the hon. Gentleman's purpose was in publishing those figures last week, but no serious political party that has any expectation of shouldering the burden of government would ever announce such changes to the capital gains tax system in advance. If there was the slightest danger of the Lib Dem proposals being implemented, those who held assets that were pregnant with capital gains tax liability would be able to dispose of them ahead of any such changes. It would therefore be grossly irresponsible, as well as completely self-defeating, to announce a tax change of that type in advance.
	Similarly, the swipe at non-domiciled residents—people who have little if any political clout, unless they are donors to the Labour party—lands a blow on an easy target, but the evidence does not support it. The Chief Secretary is looking rather shocked, but he will know that there is a case for constantly reviewing tax treatment of that sort, albeit not in a threatening or aggressive way, but simply to ensure that it produces an overall net benefit to UK plc, not just to the individuals concerned. As the hon. Member for Twickenham pointed out, the Government's review seems to have been spectacularly ineffective, even by their standards. I have to tell the Chief Secretary that when his party's largest single donation of the year has come from a non-dom, suspicions about the management of that review are bound to arise, and he will have to deal with that.
	However, the Government's manifest failure to conduct a quite proper review of the issue effectively and efficiently does not excuse the Lib Dems' announcement of a policy without researching the consequences. They claim that the proposal would increase the tax take, but at stake is £3 billion-worth of direct tax—the amount estimated to be paid by non-doms on income generated in this country or repatriated to the UK—as well as, potentially, a much bigger hit on the UK economy, as I am sure everyone would recognise, if a shake-out of the non-dom rules causes the relocation of control of significant operations from the UK to places outside it, as many in the City fear.
	I am afraid that the Lib Dem numbers just do not add up. [Hon. Members: "They do.] They do not. The Lib Dems claim that the IFS has validated them, but we talked to the IFS to see what it had done. What it did was merely check the arithmetic on the basis of a static model. The IFS has confirmed that it would expect the dynamic effects—the behavioural changes that those tax changes would produce—to work against the Lib Dems. A few minutes of not particularly in-depth analysis blows a significant hole in the model, leaving, I am afraid, the hon. Member for Twickenham clutching a £22.2 billion spending commitment, with precious little of his hopelessly speculative tax-raising agenda left to cover it.
	Before I sit down, it is worth noting for the record that if the Lib Dems' numbers come from cloud cuckoo land, whoever wrote the Government amendment seems to be living on a different planet altogether. Try telling the thousands of families let down by the tax credits system or a business struggling to cope with the longest tax code in the world that the Government have undertaken a "comprehensive...reform" of the tax system; and tell to the fairies that those reforms have "encouraged saving", when our savings ratio is at its lowest for 47 years. Try telling the wealth creators and risk takers in small business the length and breadth of Britain that the Government have "rewarded enterprise", when they have just raised the small companies tax rate and when they increased taxes on businesses by a total of £1 billion in the 2007 Budget.
	The Liberal Democrats' tax-cutting pledge is an unfunded spending commitment. The motion before us is intended to convey the impression that squeezing the wealthy—or the super rich, depending on which day it is—can pay for their proposed largesse, whereas the truth is that the measures targeted at that group will not produce anything like the sums required. As the documents produced by the hon. Member for Twickenham show, even on his own flawed assumptions, households with incomes of £46,000 upwards will be losers—

Steve Webb: I congratulate the Chief Secretary to the Treasury on his promotion to the Cabinet. It was my pleasure to shadow him and the right hon. Member for Liverpool, Wavertree (Jane Kennedy) when they were at the Department of Health when that was my responsibility, and I wish them well in their work at the Treasury.
	I had planned to expatiate on Liberal views on redistribution, to ask how one can propose freedom then take money from a group of people, and to discuss what the limits on that might be. However, as the Chief Secretary has been given such duff material to work with, I thought that I ought to respond to some of his points about the Liberal Democrats' tax proposals.
	The right hon. Gentleman seemed to be looking in two directions at once. He said two things about our plans. First, he said that our local income tax plans were evil because they would place a terrible burden on middle and higher incomes. He then said that our national tax plans were evil because they would give a disproportionate amount of money to the very same people. In other words, he was saying that cutting the basic rate of income tax by 4p would be dreadful because higher earners would gain, but putting local income tax up by 4p would be dreadful because higher income earners would have to pay more, and that was not fair. He cannot hold those two positions simultaneously. The Chief Secretary is a thoughtful man, and I am sure that he knows in his heart of hearts that he was given a bit of a duff text to start off with.
	The Institute for Fiscal Studies, for which I worked for nine years, has often been cited in the debate. It has a view about how we should assess the distributional impact of tax plans: it says that we should look at the whole package, and not pick just one bit out. The whole package includes a national basic rate cut of 4p, and a local income tax of broadly equivalent measure to take the place of the council tax. So, if the national income tax cut and the local income tax offset each other, the change would be nil.
	The distributional impact of our tax policy would be to scrap the council tax—which is effectively a poll tax, especially for pensioners and the low waged—and to tax more the very wealthy, those who gain from higher rate tax relief and those who buy large gas guzzlers or are frequent fliers. Those categories of people are all predominantly wealthy. The principal beneficiaries would be those on modest incomes who are hit hardest by the council tax. That is what I call fair.

Stewart Hosie: My point is that that is not a universal picture. I am entirely aware of employment levels: I can look at the statistics each month when they are published. I am sure the hon. Gentleman knows that many of the jobs we have lost—long-term skilled, well-paid jobs in manufacturing production and distribution—cannot be automatically or simply replaced by some of the jobs we have brought into the city since.
	The Liberal Democrat motion identifies a number of key concerns, including the growing wealth gap, and demands the publication of inequality data. It refers to
	"wealthy individuals who are non-domiciled for tax purposes",
	to stamp duty and inheritance tax, and so on and so forth. The trouble with many of the suggested solutions to some of those problems is that they are based on "Reducing the Burden", a document published recently and following on from "Fairer, Simpler, Greener", published in September last year. I am not convinced that that package will reduce the burden of taxation on low and middle-income households. Indeed, I suspect that the pension savings of low and middle-income earners will be reduced further, that their travel costs will rise, and that there will be no fundamental change in the impact of indirect taxation on the lowest quintile of earners compared to the highest.
	The Liberal Democrats advanced a good many proposals in "Fairer, Simpler, Greener". They proposed to scrap the 10p starting rate, to reduce the 22 per cent. rate to 20 per cent., and to increase personal allowances. The 40 per cent. rate was intended to remain, but would apply only to earnings of £50,000 or more. The Government have announced many changes, some of which will not come into force until next year or 2009. We need to compare the "Fairer, Simpler, Greener" and "Reducing the Burden" proposals with the current allowances and tax levels. Although the amended Liberal Democrat policy would allow earners to retain a higher proportion of their income than higher earners, we believe that that would quickly be eaten up by the impact of "green" and other taxes that would be particularly detrimental for lower earners.
	I mentioned pensions. This is an important point. The Liberal Democrats intend to apply tax relief on pension contributions at the lower rate of tax only, which would be reduced from 22 to 16 per cent. under their proposals. Although they are correct to point out that half the current pension tax relief goes to the top 10 per cent. of earners, they have no plans to reinvest those moneys in a better citizen's pension for everyone. They intend to use the £4.3 billion of savings or extra tax to fill the gaping hole that will appear in the public finances.
	The Liberal Democrats propose a number of changes in environmental taxes, including the tax on vehicle excise duty, which a number of Members have mentioned. To increase VED on band E vehicles such as some Vectras and Mondeos from £150 to £850 would be disproportionate in terms of their fuel economy and CO2 emissions. Further, it would put sensible and modest family cars such as the Renault Espace on the same level of taxation as a two-seater sports car such as a Mazda MX-5. I am unsure whether that is appropriate, and it would penalise people on low and middle incomes who need a family car.
	On aviation, even without a tax on aviation fuel the current regime hits short flights more heavily than long-haul flights. As there are usually alternatives to short-haul flights, that might be fair; but there is no alternative on long-haul routes. However, the £3 billion in additional revenue that the Liberal Democrats want to take out of the industry will simply be passed on in higher ticket and cargo rates, and charges on freight flights might have an inflationary impact, which has not been discussed.
	It is difficult to predict exactly how behaviour might change but it is unlikely that the proposals will meet the desired environmental and fiscal objectives set out in the Liberal documents. Because of environmental change, it is highly unlikely that an extra £8.1 billion will be raised from environmental taxation—either that will be the case, or the Liberals anticipate that there will not be the behavioural change necessary to fill the gap in their figures.
	I am pleased that the proposals on personal capital gains tax have gone. That would have been entirely disproportionate, and very punitive to people who have saved modest amounts of capital, perhaps in shares or share options given as bonuses, or in shares purchased through already taxed income over a lifetime of work. However, I am unsure that removing the taper relief on corporate capital gains tax will be without consequences either. People might choose to hold on to assets which they otherwise might have made liquid at an earlier stage, and that in turn might have a detrimental impact on investment—particularly cash investments.
	There will be no lessening in inequality in terms of indirect taxation. At present, the lowest quintile pays 26.5 per cent. of their income in indirect taxation compared with 14.1 per cent. for those at the top, and we are not convinced that the Liberal Democrats' proposals will produce any significant change. They have mentioned that they intend to fill some of the gap through a general anti-avoidance rule, but there is not a huge amount of clarity on that, and certainly in the most recent document there were no numbers on what that GAAR would bring in.
	Our assessment in terms of the revenue yield is that £4.1 billion would be lost from ending the 10 per cent. rate, £5.1 billion would be lost from raising the national insurance contributions threshold, £6.7 billion from cutting the basic rate to 20 per cent.—and an extra £10 billion from reducing it to 16 per cent.—£5.4 billion from increasing the upper rate threshold and another £1.6 billion from cutting corporation tax by 1 per cent. The cost would be some £22 billion, or £32 billion if the 16 per cent. basic rate were introduced.
	In terms of the revenues to compensate, I do not believe that capital gains tax will bring in the yield the Liberals suggest. Even if it doubled, it would produce a gain of only an extra £3.8 billion. There would be a gain in terms of the single rate pension contribution relief of £4.3 billion, but not one penny of that would be spent on providing a decent citizen's pension for everybody. There would also be a £1.4 billion gain from corporation tax relief changes. In terms of environmental taxes, the Liberal Democrats were not optimistic but downright heroic in their assumption of gaining more than £8 billion. I think that it would be closer to half of that because of behavioural change. There would be a £4.2 billion gain from increasing the national insurance upper earnings to £50,000. Therefore, there would be a total gain of £17 billion to 18 billion, which would leave a shortfall of some £15 billion.

Julia Goldsworthy: I want to make one thing clear at the outset—the language in the title of our motion. Our original title was "Taxation of the Super-Rich" and we had no problem with that wording; it was the Table Office that had the problem. There has been no stepping back on our part, or fear about using such words.
	Members have been much exercised about whether our proposals add up, but as we have said on many occasions, our analysis was informed by the Institute for Fiscal Studies, and we are basing our numbers on Government figures provided by the Treasury, so if the hon. Member for Runnymede and Weybridge (Mr. Hammond) or the Chief Secretary have a problem with the figures they should ask the Treasury where it may have gone wrong.
	The reason our proposals are evolving is that, unlike the Conservative party, we actually produce policy proposals, so they occasionally need to be adapted to respond to Government decisions; for example, after their flattering imitation of our policies, such as adopting our proposal for a 2p cut in the basic rate of taxation. That necessarily causes us to reconsider our proposals. That is the premise on which we proceed.
	It is fascinating to see so much interest in our suggestions. Our proposals last week related only to taxpayers, but there are of course wider poverty issues and I am sure the Chief Secretary and the hon. Member for Runnymede and Weybridge will be pleased to learn that they have another policy paper to look forward to this week when we publish our document on poverty and inequality. They can look forward to another weekend poring over Lib Dem policy documents. As my hon. Friend the Member for Northavon (Steve Webb) said, lack of policy is not one of our party's problems.
	The hon. Member for Dundee, East (Stewart Hosie) made an interesting comment about the differing regional impacts of the economic record set out by the Chief Secretary. In my constituency, child poverty is still a problem, not necessarily because of the tax and benefit system but because of other structural problems, such as high water bills. Until those wider structural problems are tackled there will continue to be hot spots. I have no doubt of the Prime Minister's sincerity about tackling such issues, but the problems will continue unless the structural issues are dealt with. Tax credits are a classic example. The intention was clearly honourable, but I have yet to hold an advice surgery without hearing from someone about a tax credit problem.
	Those wider tax credit problems interact with the tax proposals that the then Chancellor made in his last Budget—to cut the basic rate of income tax by 2p and abolish the starting rate—because many people do not qualify for tax credits. The problem is not just that people do not claim, but people without children do not benefit as much and the under-25s are not entitled to claim working tax credit, where take-up is already poor. We need to make sure that the fairness the Government hope to promote actually comes about.
	I planned to talk about the Lib Dem proposals, which Members on both sides of the House spent a lot of time discussing, but I am grateful to my hon. Friend the Member for Northavon for going into considerable detail about exactly where the money would come from. He made the important point that we should look at the overall balance of the taxation system.

Julia Goldsworthy: I am not sure what income groups that would impact most heavily on. Other policy ideas have been floated in relation to the taxation of private equity, but, although the Conservatives might have had a policy for a week or two, that has now taken the form of yet another review group.
	On another point about behavioural change, we have been deliberately very conservative about the revenue that we think our changes will bring in. The example that we give is our aspiration to raise the inheritance tax threshold by changing the length of time that is required before people qualify as having made a lifetime gift that is exempt from inheritance tax. We have not included that costing in our proposals, because we are not clear about the dynamic impact that that would have or how long it would take to kick in.

Jane Kennedy: It is customary on these occasions to say that we have had an interesting debate and heard some interesting speeches, and I thank all those hon. Members who have spoken. The fairness of our taxation system is clearly an important topic. However, only one Liberal Democrat Back Bencher spoke in the debate—the hon. Member for Northavon (Steve Webb)—and he is Front Bencher most of the time. We had 45 minutes from the hon. Member for Twickenham (Dr. Cable) in this debate, and those of us who were interested heard him speak for 45 minutes in the previous debate on corruption overseas. We have heard an hour and a half of talk from the hon. Gentleman—a whole football game of noise—but silence when we asked about his party's tax proposals. That is amazing.
	The hon. Member for Runnymede and Weybridge (Mr. Hammond) made a hugely enjoyable speech, even when he was tweaking the Government's tail. Up until the last two or three minutes, I very much enjoyed his well argued demolition of the Liberal Democrats' proposals. I am grateful for his compliments, especially about our amendment, although he did make some criticisms, which I acknowledge. He regretted the lack of cool professional analysis from the Liberal Democrats, but I look forward to engaging with him in future when he brings forward the cool professional analysis that he demonstrated this evening.
	We have increased the fairness of the tax system. The Liberal Democrats' motion talks about tax loopholes, but one of the ways that we have increased fairness has been through targeted action to close loopholes and to tackle avoidance of income tax, national insurance, inheritance tax, capital gains tax and stamp duty land tax. We have also increased fairness by incentivising work through the national minimum wage and the working tax credits. I noted the comments made about tax credits, but that debate is for another time. By providing more support for those who need it most, especially families and pensioners, we have helped those who are at the most vulnerable end of the income spectrum. The introduction of child tax credit and pension credit in particular has helped us to cut both child and pensioner poverty, which increased under the previous Government.
	I know that the Liberal Democrats' motion calls for the release of Office for National Statistics wealth inequality data since 2003, but it is HMRC, not the ONS, that is responsible for those data. Unfortunately, owing to data problems, the 2004 statistics were not released in October last year as scheduled; HMRC has subsequently been unable to obtain sound estimates and has therefore decided not to publish the data for 2004. That is clearly regrettable, but I am pleased to tell the House that the problem that affected the 2004 statistics has had no effect on statistics for later years and that the 2005 data will be published in October this year.
	As a result of the economic success that the Government have delivered—let me remind the House that we have ensured low inflation, low interest rates, high employment, high gross domestic product and high and stable growth—there has been rising prosperity for all, as my right hon. Friend the Chief Secretary to the Treasury said. Household net wealth is higher than it has ever been. There are 1.8 million more home owners in Britain now than in 1997, and the average household is £1,000 a year better off because of our reforms to the tax and benefit systems. The Government have delivered a successful economy and rising prosperity, and all of Britain will benefit from that.
	The hon. Member for Runnymede and Weybridge said that thousands had been let down by the tax credit system. We will debate that in detail on other occasions, but it needs to be put on record that the tax credit system supports 20 million people, including 6 million families and 10 million children. Take-up among families with an income of less than £10,000 is now at 97 per cent.; that is higher than the take-up for any other income-related financial support for in-work families. He also said that the savings ratio had slumped from 10 per cent. to 2.1 per cent., but that is not without a sting in the tail for him: a lower savings ratio is not surprising in a world with a stable economy and low unemployment. That is not how things were under the previous Administration.
	We have taken a number of steps to extend savings and asset ownership, particularly on the part of those in most need of support; for example, we introduced the child trust fund, and replaced tax-exempt special savings accounts and personal equity plans with individual savings accounts. We need to ensure that we maintain that position, and that requires us to strike the right balance between fairness and competitiveness. My right hon. Friend the Chief Secretary to the Treasury spoke about the increased mobility of labour in the modern, globalised economy.
	As usual, we are left with very little time to deal with the detailed points raised in this short debate. The Opposition motion refers to non-domiciled people; it would be easy to get the impression from some hon. Members who have spoken this evening that the country is full of non-domiciled people, none of whom pay any tax. In fact, we are talking about a relatively small number of people—about 112,000 of them, as my right hon. Friend said—who contribute about £3 billion in tax to the UK. None the less, as hon. Members will know, the rules on residence and domicile are under review. As Treasury Ministers have made clear on a number of occasions, and as I will reiterate tonight, any changes to the current system will need to be thoroughly thought through, and we will need carefully to balance the principles of ensuring fairness and promoting the UK's competitiveness. That is a balance that we have sought to strike throughout the tax system, and we will continue do so in future.
	The hon. Member for Twickenham could not say that he would raise as much as a penny in extra taxes for his so-called reform of the residence and domicile rules. The motion suggests that the stamp duty land tax thresholds and inheritance tax nil-rate band should reflect house prices, but no previous Administration has ever linked tax thresholds to price movements of any one type of asset. The proposal could have perverse effects; for example, linking the inheritance tax nil-rate band to house prices could result in more estates paying the tax, if prices fell.
	Tonight, we have heard a populist rallying call from the Liberal Democrats, aimed at tomorrow's newspapers and the by-elections in which they are competing. They think that everyone hates the wealthy, or the filthy rich, as they chose to call them. They think that that is a way to get votes, but I have to tell them that it is not the way to get the taxes in. As my right hon. Friend the Chief Secretary to the Treasury said, last Friday the title of this debate was "Fair taxation of the super-rich". By this morning, it was "Fair taxation of the wealthy". If this debate had been tabled for Thursday, by Tuesday it would have been "Fair taxation of the middling". By Wednesday it would have been "Fair taxation of the ain't doing so well"—

That the draft Limited Liability Partnerships (Amendment) Regulations 2007, which were laid before this House on 6th June, be approved

Motion made, and Question proposed, That this House do now adjourn.— Mark Tami.]

David Kidney: It is a pleasure to welcome my right hon. Friend the Member for Coventry, North-East (Mr. Ainsworth) to his place on the Front Bench. I congratulate him on his new position as Minister for the Armed Forces. I am sure that he will do an excellent job and I can say to all members of our armed forces, wherever they are in the world, that they have a veritable Rottweiler in my right hon. Friend, who will be a tenacious defender of their interests and argue for them in the future.
	The debate is about the future of MOD Stafford, which is a story of optimism, thanks to my right hon. Friend the Member for East Kilbride, Strathaven and Lesmahagow (Mr. Ingram), my right hon. Friend's immediate predecessor. I express my sincere thanks to my right hon. Friend the Member for East Kilbride, Strathaven and Lesmahagow for his work in securing the future of MOD Stafford. He was always ready to listen to my concerns. He was patient when I raged and encouraged me when I had half a decent idea. I am grateful to him for all his help and support.
	Not long ago, the picture was different and the future looked bleak for the base. First, there was an announcement that approximately 450 uniformed personnel, who were based at the then RAF Stafford, would be relocated to RAF Wittering towards the east of the country. Shortly afterwards, the Ministry of Defence announced that all the storage and distribution operations at Stafford would be moved to Donnington and Bicester, threatening around 1,000 civilian jobs. Even the remaining RAF personnel, who were with Tactical Supply Wing, were caught up in a review of Joint Helicopter Command. It felt at that time as though we were spiralling downwards, towards total closure of the base, which would have ended more than 60 years of association between the military at that site and the town of Stafford.
	Happily, however, we turned things around in Stafford. Most people in Stafford are extremely supportive of their military base. It is situated on the edge of the town and so has a physical closeness to local people, as well as emotional ties. It was therefore not difficult for me to energise the local community to defend our base. We formed a taskforce and we lobbied Ministers. I brought delegations to meet the former Minister for the Armed Forces in Whitehall. We argued for the base to be retained and for new uses to replace those that were to be lost.
	Then we started to receive good news. We were pleased to learn that Tactical Supply Wing would remain at the Stafford base. It is important to point out how brave the people who work for Tactical Supply Wing really are. They are the people who fuel helicopters in all sorts of situations. If the helicopters are flying at the front line in great danger, Tactical Supply Wing is there with them, at the front line and in great danger, too. Tactical Supply Wing keeps helicopters flying to transport our troops for offensive operations. It keeps helicopters flying to rescue injured troops and bring them back to safety for treatment. All through the troubles in Northern Ireland, wherever Army helicopters flew there, Tactical Supply Wing was there fuelling them. I think that I am right in saying that Tactical Supply Wing has been the longest continuously active serving unit from this side of the Irish sea in Northern Ireland all through the troubles.
	Then we persuaded the Army to take a look at the base at Stafford. As a result, we heard the hugely welcome news that the base would be the headquarters of 12 Signal Group and the home for a new 22nd signal regiment. As a result of that decision, around 700 new uniformed personnel have moved into the base in the 12 months since. That is very welcome to local people. Interestingly, the move to Stafford has included around 160 Gurkhas, who have proved immensely popular with local people. Most Gurkha soldiers have brought their families to Stafford, and we as a community are busy welcoming them to homes, jobs and schools in the town.
	Among the civilian jobs that went with the Defence Storage and Distribution Agency were those of some engineers. There was great uncertainty about their future, but we recently received the good news that their jobs would mostly be saved, by folding their operations into those of the Army Base Repair Organisation. However, I still regret seeing so many good-quality civilian jobs being lost to our local economy, as the storage and distribution operations come to an end at the end of this year.
	However, I pay tribute both to the Ministry of Defence's human resources officers and to our local jobcentre at Stafford for helping staff to make decisions on whether they wanted to transfer to other MOD operations or take early retirement, and for helping people to find new jobs as those at the Stafford base ended. Again, I thank and congratulate the former Minister for the Armed Forces. When I asked him whether the human resources people and our Jobcentre Plus office could work together and go into the base at an early stage to give good advice to people, he had the foresight to say yes. We have had a really smooth operation in helping people at a time that would have been very worrying for them.
	Just in case there is any chance of a late change of opinion in the Ministry, bearing in mind that new ministerial minds are operating there and that, for all I know, things are changing behind the scenes, I should like the new Minister for the Armed Forces to hear the four reasons why I say the wrong decision was taken on moving storage and distribution away from Stafford. The first reason is that the performance figures show that Stafford workers were among the most efficient anywhere within the entire Defence Storage and Distribution Agency.
	The second of my reasons is that Stafford is such a central location for logistics. After all, that is why many private logistics companies choose the west midlands in general—as my right hon. Friend will appreciate, as a fellow west midlands MP—and Staffordshire in particular for their operations. For once, the Ministry of Defence was in the right place with logistics in Staffordshire, with its access to the communications network of motorways connecting it to the entire country.
	The third reason is that Stafford has the only purpose-built, large-volume activity centre in the entire agency. So crucial is it to the fast moving of many individual items of equipment and machinery that the Ministry of Defence is having to spend scarce resources recreating an alternative building at Donnington to replace the one that it will lose at Stafford. No one in the MOD can tell me what is going to happen to the storage and distribution activity centre—SADAC—at Stafford when it closes at the end of this year. I fear that it will stand empty, although it is perfectly good for use, while the new one at Donnington eats up scarce resources to replace it.
	The fourth issue is one of recruitment and retention. As it is a more northerly location, Stafford has lower housing and labour costs compared with some of the alternatives in the south, and a willing and available work force on the doorstep of the base. There were good reasons, and there still are today, for retaining it, and I hope that something can be rescued.
	Now that the future of the base has been secured, I want to start where any forward-thinking organisation would start: with our youth. Stafford has really good cadet forces for the Army, the air and the sea, and MOD Stafford provides a good home for the Army and Air Cadets. I am happy to confirm that I visit them regularly. I find really enthusiastic young minds and bodies willing to learn new skills, to attempt to gain new qualifications and to gain good discipline—both self-discipline and the discipline that comes from working with a team—from the work that they do in the cadets at MOD Stafford. I feel strongly that we should work hard to involve more young people in cadet forces, where they can learn skills that will stay with them for life. They will be able to have a crack at gaining valuable qualifications, including Duke of Edinburgh awards, and some choose careers in the services as a result of positive experiences in the cadets.
	While I am on the subject of youth, I want to draw to the attention of my right hon. Friend the Minister a decision that was recently taken by Defence Estates—I know that he will not be able to respond to this tonight—in answer to my asking whether a local brass and drum marching band, Stafford Lancers, might have access to the MOD Stafford site for its playing and marching practice. They are very noisy people when they practise, and when they do so at local schools, some residents are not very happy about it. These youngsters, some of whom have been working with Stafford Lancers for more than a dozen years, might otherwise have no activities to engage in during their leisure time, and some might come from deprived backgrounds, but in Stafford Lancers they learn new skills and get the satisfaction of achievement. They have also been winning national and regional awards for years. It is a pity, therefore, that Defence Estates has recently concluded that it cannot provide them with the necessary space for their practice at Stafford.
	I turn to the subject of our Territorial Army. Stafford lost its only training base for the TA as a result of the strategic review in 1998, when the drill hall at Kitchener house in Lammascote road was closed and subsequently sold. Our TA involvement in Stafford finished as a result, even though there are valuable TA contingents located around the county of Staffordshire and neighbouring ones in Wolverhampton and Telford. Will my right hon. Friend tell me whether he is thinking of bringing back regular TA training to MOD Stafford? Closer ties with the TA obviously help to support our regular forces, and having a training base at Stafford might help to attract more residents of the area to be part of the TA while still carrying out their work and studies locally.
	On the regular armed forces, can we expect to see additional armed forces at MOD Stafford in the coming years? As more forces are relocated to the UK from Northern Ireland and later perhaps from Germany, places such as Stafford could offer them new bases. Does the Minister agree that the midlands as a whole could offer several options for accommodating returning members of the armed services? I would like to assure him that people in Stafford would welcome playing their part in bringing the troops back to homes in our region.
	What of the MOD's plans for the so-called super-garrisons of the future? Will my right hon. Friend tell me about the latest developments and plans for them and whether it is within his consideration that one could perhaps be located at Stafford at some time in the future? What exactly are the plans for the future and what kind of timetable is being worked to presently? Stafford has always been very supportive when it comes to its military base, and the community benefits from it and appreciates its presence in our midst. If there were to be a super-garrison at the Stafford base, it would be useful for the Government to talk to the regional bodies responsible for planning, housing and infrastructure and for economic development. Clearly, such a major change in use would need careful planning.
	I would like to advise my right hon. Friend that it would be useful to talk to Stafford borough council as soon as possible, because it is preparing its local development framework right now. I foresee that a larger base at Stafford would need more accommodation and I can see opportunities as the council develops its plans for housing for some of the military land to become valuable house building land of the future. I believe that the base could be reconfigured to give up some land for housing and to make use of either the money or building works in return for providing more forces accommodation on the remaining base. To do that, we really need to talk to the planners now; otherwise, the opportunity will be missed.
	Generally, the base at Beaconside, Stafford has gone through many changes in recent years regarding both occupancy and resources, but it is now time to look forward once again with optimism and determination to the future. The base has been an integral part of Stafford's economy for more than 60 years, providing civilian jobs and services personnel who buy homes, find jobs for their spouses and partners, send their children to schools and shop locally. It is a busy place today with Army Signals, Tactical Supply Wing, Army Cadets, Air Training Corps, MOD police, the defence fire and rescue service and, of course, the supporting civilian staff. Sadly, we are losing civilian storage and distribution jobs, but the military presence helps offset at least some of those job losses. MOD Stafford now has security and the community is ready and willing to welcome further military uses.
	Then there is the question of the name for the Army barracks. We had an interesting and full debate locally about the many possibilities. We have discussed famous battles of the past in which Stafford forces, such as the Staffordshire Regiment, have been involved. We have discussed famous generals of the past who were involved with the county; and we also considered former war leaders, such as Churchill. Personally, I think that we should go back to local ties. The reason why the area is called Beaconside is that it was the site of one of the national network of beacons that this country had centuries ago to warn against a possible invasion or threat. I believe that something like "Beacon barracks" or "Beaconside barracks" would be the best name for the barracks in future.
	Talking of beacons, for centuries the country's network of beacons on high ground, such as the Beacon hill on the edge of Stafford town, has been a symbol of our fortitude and resistance in the face of external threats to our security. Just as the beacons signalled readiness, resolution and reassurance, so in this modern age MOD Stafford and our other military bases around the country fulfil exactly the same role for all of us.

Bob Ainsworth: I begin by congratulating my hon. Friend the Member for Stafford (Mr. Kidney) on securing the debate and thank him for providing me with the opportunity to speak to him on this issue before this evening's debate. I should also like to pay tribute to his tireless efforts to ensure that his constituents' interests are fully represented as we go through the process of determining the future defence presence on the Stafford site and in the west midlands area more generally. Once again, he has set out his case cogently and well.
	I also echo my hon. Friend's generous words about my predecessor, my right hon. Friend the Member for East Kilbride, Strathaven and Lesmahagow (Mr. Ingram)— [Interruption.] There we are, it should sound like "Lesmahagal", as I am advised by Mr. Speaker! It seems that my predecessor dealt with my hon. Friend in the same way that he dealt with others—in an honest and straightforward manner, which was appreciated by most of those who met him.
	My hon. Friend will recall that my predecessor outlined the position regarding what was known as RAF Stafford during an Adjournment debate in early 2006. I welcome the opportunity today to bring the House up to date on the current position.
	The defence estate supports the provision of defence capability. That means that its usage must be kept under review to ensure that it is the right size and quality to meet future requirements. That constant process of review has had particular implications for the Stafford site in recent years.
	As my hon. Friend is aware, the Stafford site's history is closely linked with the RAF. Following the departure of the RAF logistics units in early 2006, however, direct RAF interest in the Stafford site ceased. That left the Defence Storage and Distribution Agency and the Tactical Supply Wing, a joint helicopter command unit that supports deployed helicopter operations, as the primary users of the site.
	As announced by the previous Secretary of State for Defence in July 2005, planned improvements in the way that we manage the defence supply chain mean that we can reduce our storage and distribution capacity, while saving money and becoming more effective. As part of those changes, the storage and distribution centre at Stafford will close at the end of the year. As my predecessor told my hon. Friend previously, there is no chance of revisiting or reversing that decision.
	The centre is one of three storage and distribution centres that will close around the country by 2009. Given the consequences for staff, the decision to close the three centres was a difficult one, and we are committed to supporting those affected. An early release scheme has already been run across the Defence Storage and Distribution Agency as a whole, and staff who applied were offered early release by May 2007. At Stafford, a follow-up early release scheme commenced on 18 June 2007 for staff in the travel-to-work area. Through those measures, we are confident that there will be minimal redundancies as a result of the closure of the storage and distribution centre.
	Another aspect of the Defence Storage and Distribution Agency's activities at the site is Stafford Engineering Wing—now renamed Engineering Services. The future of that function was determined in November 2006. Work not related to product storage, such as in-depth repair work, will remain at Stafford with responsibility transferring to the Army Base Repair Organisation. Work related to product storage will transfer to Donnington with other Defence Storage and Distribution Agency functions.
	The changes to Engineering Services take effect on 1 October 2007. We are fully engaged with the trade unions with the aim of minimising the impact on the individuals affected. Every effort is being made to minimise compulsory redundancies through a number of measures, including redeployment elsewhere in the Ministry of Defence and voluntary early release.
	As my hon. Friend is aware, in parallel with the reductions in storage and distribution activity, we have been working towards establishing a permanent Army presence at Stafford. In April 2007, 22 Signal Regiment formed at Stafford, with the necessary infrastructure improvements completed on time. In February 2007, 248 Gurkha Signal Squadron and 222 Signal Squadron moved from their previous units to Stafford and began to settle in. 217 Signal Squadron is now formed and growing steadily, and, together with the support squadron, there are now some 450 soldiers in the regiment and some 200 Army families living in the Stafford and Donnington area.
	The regiment has already deployed on operations and has supported a number of events in the borough. I am pleased to say that soldiers and their families have been made to feel very welcome by the local community. I believe that my hon. Friend will be at its official formation parade later this month. The regiment is expected to be more than 500 strong by the end of the year and, together with a small formation of station headquarters staff, Army recruiting teams and the Tactical Supply Wing, we will have more than 800 regular military personnel at the Stafford site.
	To complete the current picture, Stafford also provides headquarters for 12 Signal Group, a Territorial Army Signal unit that carries out signals training for the Army across the country, and there is also a cadet company headquarters at the site.
	Looking ahead, we are examining a number of possible options that would result in the consolidation of the Army's presence at the site. There are plans for the relocation of other cadet units to Stafford, and we are considering the feasibility of making Stafford home to 35 Signal Regiment, a TA unit affiliated to 22 Signal Regiment. We are also considering Stafford as a temporary location for vehicle storage as facilities at Ashchurch are redeveloped. However, I am not in a position to confirm those moves today.
	As my predecessor announced on 24 July last year, a study team is examining the long-term basing requirements for elements of the UK's Germany-based forces, particularly the headquarters of the Allied Rapid Reaction Corps, 1 Signal Brigade and 102 Logistic Brigade. Stafford is one of three sites being considered as potential bases for elements of 102 Logistic Brigade and 1 Signal Brigade who may return from Germany to the UK. Although a final decision on the future basing of HQ ARRC may be announced before the end of the year, we do not expect to be in a position to announce our final decision on the future basing of 1 Signal Brigade and 102 Logistic Brigade before next year at the earliest. Owing to the relative immaturity of our proposals, no discussions have yet been held with local authorities in any of the shortlisted locations for 1 Signal Brigade and 102 Logistic Brigade, but we hope to be in a position to start the process soon.
	As for the long-term aspirations for Stafford, my hon. Friend is already aware that over the next 30 years the Army aspires to base its people in what, as he knows, are called super-garrisons. The Army is developing its policy in that regard, but the benefits might lead to a smaller number of larger sites, providing a better quality of life and more facilities for Army families. Progress on super-garrisons will depend upon a range of factors including the availability of resources, but there is no doubt that the west midlands is one of the areas with the potential to develop a super-garrison. Partly with that in mind, we currently have no intention of disposing of any land, at Stafford for housing or any other use, in order to retain that flexibility.
	I assure my hon. Friend, as has my predecessor, that we understand the need to engage with all relevant Departments, regional bodies and local authorities as we develop our super-garrison proposals. Indeed, officials from Defence Estates are already engaged with the west midlands regional spatial strategy, and a marker will be placed for the possible development of a west midlands super-garrison demonstrating the MOD's intentions for the area.
	My hon. Friend said that he would appreciate an update on the renaming of MOD Stafford. As he is aware, we have held informal discussions with various stakeholders, units, local dignitaries and the Stafford taskforce to find the right name. MOD Stafford is located in the Beaconside area, as he said, which is so-named because of its use for signalling beacons since Tudor times. Against that background, my hon. Friend will be pleased to hear that the name "Beacon barracks" emerged as the strong favourite given that it has strong local connections and is also relevant to the Royal Signals. I am therefore delighted to announce that the barracks should now be known as Beacon barracks.

Bob Ainsworth: Yes, I will write to my hon. Friend on that second point. On the first point, I hope that he accepts that we must maintain flexibility if we are to be able to accommodate super-garrisons—if that is where we go. Such decisions cannot be taken at present. We will look at whether or not it is too early to engage with the local authority on planning, because I am told from within the Department that my hon. Friend is concerned that we seize any local opportunities.
	Our requirements for land at Beacon barracks have changed, but our need for the estate has not. I can assure my hon. Friend that Beacon barracks features very much in our plans for the future. We will continue to work closely with the local community and other interested parties as our plans mature.
	 Question put and agreed to
	 Adjourned accordingly at four minutes to Eleven o'clock.